1031 Exchange Problem With Builder
In the middle of 1031 exchange. Trying to find replacement property. I like to buy new in Phase 1 Filing 1. Only problem is this builder is asking for $40,000 ernest money on a $200,000 property. I only have $20,000 from the exchange, and was planning on putting 10% down- already approved with lender. Builder requires only $2,000 ernest money from non-investors. This property has great potential for fast equity, and I really want it. Any ideas?
I assume you are talking about a residential development, right?
Guess you could be moving? how about wanting your mom to live a little closer? with a 20% earnest money d/p; this builder is obviously working hard to avoid investors - the only type of situation that would attract my interest!!!
If you can't get around the 20%; then I'd put up the entire 40k - but work hard to try to buy without the investor status as anyone who succeeds in getting around the investor status will be your competition at sales time.
cdstarkie,
If you have $20K in exchange funds available now, put all $20K into your earnest money deposit. Offer the builder a contract on your terms -- $20K down now, balance at settlement, no financing contingency (you said you were already approved for a 90% loan, right).
I suspect that the builder will be more flexible if you also request a quick settlement date, though if the property is still under construction you may not have this option.
I had a similar experience with a new construction developer. The agent told me that they require 10% earnest money. I offered 1% with settlement in 26 days, no financing contingency. They accepted.
Another approach if you strike out with your other offers, give the builder your $20K exchange funds and a promissary note for another $20K (redeemable at settlement).
Since you are trying to do an exchange, be careful about trying to purchase as an owner-occupant. As Bill Exeter will tell you, an owner-occupied property is not eligible to participate in a 1031 exchange.
Thanks,
I had already offered the $20K- and to close in less than 3 weeks- as soon as construction is completed. Haven't tried the promissory note... Was thinking of holding as a primary residence, then quickly refinancing another property to get the funds to switch to investor buyer before closing... Other thing I was thinking is to have husband purchase the property as primary outside of the 1031 and then him selling to me to use the 1031 funds- just don't want to have to pay for 2 closings. I'll call my exchange company tomorrow and see what they suggest...