How to best purchase with a 1031 exchange timeline

[Alex Sarnoff]

We are soon listing our first property for a 1031 exchange. Upon closing, we will have 45 days to identify 3 replacement properties and then 180 days to close on one of those 3.

This seems like a concerning setup. What if all 3 of those identified replacement properties sell to other interested parties during the 180 day closing period and we never get any under contract? Can I put one of the 3 replacement properties under contract before the 45 day period ends and identify another 2 as backup properties?

How soon should I begin sending out LOI's on properties? Should I have agreed LOI terms with all 3 properties and sort of "lie" that we intend to use them for our contract even though we are only choosing one of three? I assume we wouldn't want to use one of our three selection properties on a property that could sell to someone else soon once the 180 days begins.

What if I get a property under contract and the 180 day closing window begins, then the seller backs out? Do I then have to try desperately to get one of the other 2 properties under contract and closed by the end of the 180 days?

This is stressful and makes taking the tax hit look appetizing. 

[Alex Sarnoff]

Quote from @Bill B.:

1) Make sure you understand you don’t have 45 days and then 180 days, you have 45 days, and then 135 days, 180 TOTAL days, unless that’s a holiday/sunday, then you have less than 180 total days. 

2) Yes, you can do everything but close on any of the 3 replacement properties before you sell your existing property. You can also obviously do that anytime between the day you close on your existing property and day 45. I personally didn’t want to make any offers contingent on my current property closing (they would be ignored.) So I had 4-6 properties I’d been watching for 10-20 days before my closing. The day my property closed I made 3 offers with obviously strong down payments (from my exchange.) 2 countered and one accepted, so I went with the accepted offer. I then closed 38 days later. If that deal had fallen out I still had 7 days to list any 3 properties I was interested in. The 180 day limit was never a factor, even the 45 day limit didn’t come in to play. 

I don’t know why a seller would ever back out. Short of you asking for changes/repairs/a price change. Again, it won’t matter because you’ll have a signed contract before day 45. You can make offers on 2-3-4 whatever number of houses, but don’t put down deposits on homes you don’t plan to buy. 

Connect with someone like @Dave Foster. I used him for my 1031 last year. It was smooth as butter. 

Thanks, great info. I think I will take part of your advice and start sending out LOI's 3-4 days before the downleg closes and see the responses. Then try to put the best one under contract on day 1 of the 45 day period for a 30 day escrow. It gives me at least 15 days if something happens in the contract negotiations. Does this sound reasonable?

My biggest concern was that I have no bargaining power when its under contract on splitting repair expenses with the seller because I have to close on it. It sounds like that won't be the case though.