45+ years of doing tax deferred exchanges has led to the development of the 45-day to Close Game Plan. Bob Nelson, Eugene real estate investment broker with Pacwest Real Estate Investments, shares how it he takes a 1031 Exchange to close within 45-days. As a special bonus, we have prepared an infographic of Bob’s plan.
Scroll Past the Infographic to Read or Click to Listen
Essential Preparation before the sale of the relinquished property
- Identify and rank investment benefits needed from the replacement property: Cash Flow – Tax Shelter – Principal Reduction – Appreciation of Value – Tangible Asset.
- Set up a pre-approved loan to purchase the replacement property: Select a lender with strong investment lending expertise.
- Enter into an exclusive buyer-broker-agency agreement: Meet prior to sale of the relinquished property and begin client counseling sessions.
Bob Nelson, Eugene Commercial Real Estate Investment Broker:
Time is the enemy of the 1031 exchange. By meeting with my client early and often, I am buying valuable time. Gaining a through understanding my client’s investment goals objectives, concerns, strengths and weaknesses will enable me to fly into action the first week.
WEEKS 1 & 2: Replacement Property Search and Selection
In the first two weeks, screen every property that meets the objectives of the client. Properties that are the type of asset they have identified and meet their investment cash flow requirements. Three replacement properties must be selected at the end of the two-week period.
Bob Nelson Expert Tip: If my client likes beds, I’m going to be screening for apartments. If they hate beds, I’m not going to be screening for apartments. I’m going down a path that would expose me to the greatest number of properties that would have the potential of satisfying my client’s needs.
WEEK 3: Replacement Property Under Contract
The third week is reserved for making offers, negotiating counter offers and solidifying the transaction. It is critical to have the replacement properties under contract by the end of the third week.
Bob Nelson Expert Tip: If I hear any of these danger phrases, stop immediately: “I just can’t decide”. “I haven’t seen it all. You’re asking me to make a decision.” “I only like one property. I don’t like these other ones.” “What if a better one comes along?” I re-counsel the client as to the consequence of indecision in this tight time frame.
WEEKS 4 & 5: Due Diligence and Appraisal
The fourth week and onward is reserved for due diligence. At the beginning of the fourth week do the on-site due diligence walk through inspections. Now is the time to identify if the properties meet the client’s expectations. What does each property’s financial reports and preliminary title report show? Any concerns from the appraisal?
Bob Nelson Expert Tip: In some instances, the various inspections may identify the selected property will be a train wreck. What then? Back off, start over? But, we are not allowed to start over after the expiration of the 45 Day ID Period. That is why I insisted upon identifying a second and third property. I will fly into action to acquire one of the other two identified properties prior to the expiration of the allowed 45 Day ID Period. To fail is to pay the tax.
WEEK 6: The Close – Over the Finish Line
In the six week the exchange is headed for the finish line! Send the exchange accomendator the ID letter around day 42. At the end of the sixth week, which is the end of the 45-day period, the replacement property is ready to close.
If you’ll follow the 45-day to close plan, the probability of a successful 1031 Exchange and a happy client is huge!
Bob Nelson Expert Tip: Take advantage of my 45+ years of experience, learn more about commercial investment real estate via articles, BlogCasts, and videos at:
1031guru.com and bobnelsoneugenecommericalrealestatenews.com