Tricks & Traps Part II

More Tips & Traps for Buyers

When purchasing a property as part of a 1031 exchange there are many factors/representations to be weary of. This article is a follow up on a previous advice article for buyers considering exchanging into income property to meet the “held for investment” requirement. 

If Re-Zoning is required: Make the contract not only contingent upon obtaining a re-zone, but wait for all appeal processes to expire. Put a date on the contract such that there are no more additional chances for additional appeals, such as “45 days after zoning approval to XYZ zoning classification,” if, for instance, there are 30 days to appeal a zoning decision. 

If you are buying a replacement property that requires some work: put a contingency in the contract to provide for a maximum amount spent to make the property whole. Therefore if the seller is not disclosing, for whatever reason, expensive repairs required then you can provide yourself with further options. This should always be the case to bring a property up to code. 

For Over Priced Property: Tell the Seller or Listing Broker, in a polite way, that “the property is really no worth X, but when they get in line with the market, you’re ready to buy and will do so quickly.”

Always ask how much reserve is required. The term ‘reserve’ refers the amount required to be set aside for repairs on long-term items such as roofs. It is also known as a sinking fund. Determine if there are service contracts in place and look for such line-items as management fees that may be hiding property problems. 

There are many items to consider when exchanging into a new property. As an exchanger, you have been through the process before; however, there are always new ways sellers will think of to increase their bottom lines.