1031 Replacement Property Strategies

[Joyce Riley]

If you are doing a 1031 Exchange, do you notify the seller that you are paying cash as part of a 1031 when you put in an offer? Does this put you at an advantage because sellers like cash and don't have to worry about appraisals or mortgage requirements? OR does informing the seller that your transaction is a 1031 Exchange put you at a disadvantage because they know you are on a strict timeline to identify properties? 

[Dave Foster]

@Suzanne Player, The seller must be notified but there is no requirement for when.  We will always provide documents as part of the closing that satisfy the notification requirement.  So that covers the legal requirement if you want to keep the 1031 anonymous during your negotiation with the sellers.  Many folks feel that revealing the 1031 too early gives the seller an advantage in negotiation.  Or they feel that it can confuse or concern the seller.  I have a lot of faith in humanity.  But I must admit that I've seen a few (very few) sellers try to take advantage of my clients because they thought they could leverage the 1031 for their benefit.

We usually recommend that you simply make your contracts assignable and that covers everything your QI would need to do.  And many standard realtor association contracts have built in cooperation addendums for 1031 anyway.  So it's slowly becoming a non-issue.

Having multiple properties is a good strategy.  But at some point you kind of have to commit to one prom date.  Because the other sellers won't wait forever.  I have always counseled that the best strategy is to have your transaction as far down the road as you can during the 45 day period when you do have flexibility.  Even get your new property under contract before your old property closes so you can maybe close your new property during the 45 day period.  That really eliminates risk for you.