In the midst of a IRS Section 1031 Tax Free Exchange

[David Krulac]

As I talked about in Bigger Pockets Podcast #82, I've been doing !031 exchanges for some time now.  They are not getting any easier either.

The 45 day identification period is hard and fast, miss that date and you have a fatal flaw for the exchange.  Miss that date and there is no corrective measure and the exchange is DOA.

Right now I'm doing an exchange, and of course I'm looking for a superior property.  The properties that I sold were not on the market for sale and somebody approached me about buying them and I sold for a price that I was comfortable with.

But the new properties that I would want to acquire have to meet certain criteria:

1.  The return must be as good as the relinquished property, obviously.

2.  The property must be in a certain area

3. I'm primarily looking for either a SFH or vacant land, but I did inquire about buying a US Post Office.

4.  I can't count the number of properties that I've put offers in on.

5.  Some of the properties were over priced and I put in offers based on my valuations.  I gave sellers comps, and one seller told me they didn't care what the comps said.  I don't care to buy that property.

6.  One property was a large farm that had development potential, but only had enough road frontage for one entry and the municipal zoning/subdivision ordinances require at least two entry points.  To develop this property you would need to buy at least one other property and you would be at a disadvantage if the seller realized your absolute need.

7.  One property had been on the market for almost 200 days, and the owner had already turned down an offer within $10,000 of asking price.  I think I know why the property was on the market for 200 days.

8. An estate property vacant for 2 years, with all utilities on, seemed like a good candidate. The POA however did not want an appraisal, any home inspections and no mortgage contingency. In fact the POA wanted no contingencies at all. I understand why the property was on the market for 2 years!

9.  One factor that people in a 1031 don't realize is that 45 day period moves extremely fast.

10.  Another factor is that you're looking for a superior property and usually one that you're planning on holding for a longer time.

11.  Flip properties are not eligible for 1031 exchanges and they are considered dealer property and not investments.

12.  To everybody doing a 1031 exchange right now, I feel your pain and wish you good luck.  

[Dave Foster]

@David Krulac, If anyone can find that replacement it'll be a seasoned 1031 investor like you.   

just a suggestion for next time -   Since your buyer approached you unsolicited they may have been willing to extend or structure a closing that would have been flexible to give you some more search time.  We have many clients who are in contract on their new property before they close the sale of their old property.