1031 exchange to NNN first purchase questions

[Alex Sarnoff]

Hi Everyone,

We are exchanging for the first time from MFH to NNN retail properties.

 We have ~$4mm in equity in the downleg and plan to leverage to $8-10mm for an upleg purchase. The downleg is in the final stages of creating a marketing package from the broker that we're using and should be listed in the next couple weeks. I have already selected and contacted a 1031 accommodator company.  

When should I start the mortgage preapproval process for our upleg?

When we purchase our upleg, how can we best negotiate to protect ourselves? Should we begin the LOI phases before the 45 day selection period begins or wait until the 45 days starts to send out LOI's?

Basically, a seller knows their property is our 1031 selection upleg during the 45 day period. That doesn't give us many options for negotiating contingencies such as repair requests etc. It seems like they have our arms twisted behind our backs in negotiations. Is there any way to navigate this? Should we say that we identified many other properties during our 45 day selection period?

Are there any terms we should add to the transaction language to protect ourselves from the seller backing out of the contract? For example, if a seller knows we are in a 1031 and says "no concessions/repaur requests, take it or leave it"  after our 45 day identification period is over we are screwed with a bad deal. In the past when buying a house, we had a seller say "on second thought, a lot of other offers are coming to the table, we will need to raise the purchase price $X to continue" which would also put us in a bad position if our 45 days is over.  

Any help is appreciated. I've sold properties in the past but this is my first 1031 exchange. 

[Dave Foster]

@Alex Sarnoff, Much of your uncertainty on these things can be easily addressed by your QI.  It's a very common concern that the other side of your transactions might try to take advantage of if they know you are doing a 1031 exchange.  There are ways to keep your 1031 exchange anonymous.  But they involve some contractual things coupled with some statutory requirements and timing that have to be initiated by the QI.  But there is a way to accomplish exactly what you're asking.

I believe I have a colleague request out to you if you'd like to discuss further