After an unusually cold winter, which inevitably slows the real estate market down, the beginning of the Spring season is now here, with warmer weather, and a huge increase in activity. Judging from the decreasing number of days on market for new listings, and the huge buyer demand, it will once again be an active seller's market, with prices likely to rise by summer's end.
How does this affect 1031 exchanges? A seller's market poses some definite challenges, especially when it comes to acquiring a replacement property. First, since there is no guarantee that a property identified will actually go under contract, we advise buyers to begin their search for the replacement property immediately after closing on the sale of the old property. This way, if the 3 properties that were identified all go under contract with someone else (a common occurrence), the buyer still has some window of time to identify 3 others, up to the 45 day limit. Next, we suggest doing what it takes to actually close. If the deal falls apart for some reason, again, you are under a time constraint to identify something else. This means get your inspection, and any other due diligence, as well as contract negotiations, asap. Make sure your financing is solid as well, and work with a reputable lender on this.
A 1031 exchange is easier in a buyer's market, because, it is not the sale of the old property that needs to be done in a given time frame, it is the purchase of the new one. In a buyer's market, there is so much choice, and, even with the time factor, things can be a little more relaxed. But in this market, time is even more of the essence than usual, and it is imperative to understand the limited wiggle room a buyer has, especially one performing a 1031 exchange.
How does this affect 1031 exchanges? A seller's market poses some definite challenges, especially when it comes to acquiring a replacement property. First, since there is no guarantee that a property identified will actually go under contract, we advise buyers to begin their search for the replacement property immediately after closing on the sale of the old property. This way, if the 3 properties that were identified all go under contract with someone else (a common occurrence), the buyer still has some window of time to identify 3 others, up to the 45 day limit. Next, we suggest doing what it takes to actually close. If the deal falls apart for some reason, again, you are under a time constraint to identify something else. This means get your inspection, and any other due diligence, as well as contract negotiations, asap. Make sure your financing is solid as well, and work with a reputable lender on this.
A 1031 exchange is easier in a buyer's market, because, it is not the sale of the old property that needs to be done in a given time frame, it is the purchase of the new one. In a buyer's market, there is so much choice, and, even with the time factor, things can be a little more relaxed. But in this market, time is even more of the essence than usual, and it is imperative to understand the limited wiggle room a buyer has, especially one performing a 1031 exchange.
