reinvest in already purchased property

[Craig Coulson]

I'm going to be doing a 1031 exchange sometime in the next few months. (existing tenants will buy a rental property -- exact date not set yet.)  I plan to roll the proceeds into a 1031 property.  However, I  just saw a property that I am interested in right now.  Could I buy that property now (assume I could make the deal)  and then move my 1031 exchange proceeds into that property when the 1031 exchange is finalized?

[Dave Foster]

@Craig Coulson, the statutory order of a 1031 exchange requires you to sell your old property before taking title to your new property so what you describe is not possible.

But... There is a process called a "reverse exchange" that can accomplish the same thing.  In a reverse, the qualified intermediary for your 1031 exchange sets up a new entity called the exchange accommodating title holder (eat).  The eat would purchase the new property you want and hold it until you sell your old property.  Now you can follow the statutory order of sell - buy.  You have sold your old property and you now buy your new property using a 1031 exchange.  The only difference is that you are buying it from the eat rather than the current owner.

Reverse exchanges are trickier, more expensive and require larger gain to be worthwhile.  But if that new property is perfect and the situation with the old property makes it worthwhile it might be a good thing to investigate.

Before going that route you may want to negotiate with the seller telling him of your situation.  For the right contract/earnest money etc he may be willing to wait until your tenants execute.