You did everything the tax code required and you’re still paying the tax. Let’s get in to how you prevent that from happening.
As you start to counsel with the client prior to the sale of a relinquished property, you’re attempting to identify goals and objectives of that investor.
- What are they attempting to accomplish?
- What series of investment benefits are they seeking from their next property?
There’s cash flow, there’s tax shelter, there’s principal reduction, there’s appreciation of value. There’s a fifth one that’s not a financial benefit and that’s the fact. It’s a tangible asset.I can drive by it each day, it’s still there. I don’t have to look at a TV screen to figure out if my stock still has any value. That psychological benefit is huge in these times. I’m looking at what are the five benefits they’re after? Which one is more important?
I need to become pre-approved in the size of loan that I’m going to need to replace as I go into my replacement property. I’m going to go to a lender. I’m going to get a pre-approval loan that they would lend me that amount of money pending the finding of a property that would in fact qualify for that loan.
I’m going to also enter into an exclusive buyer-broker-agency relationship. I am not going work off of a handshake on a tax deferred exchange. During the 45-day identification period, I’m going to break it into a series of segments because frankly if I’m acting as your exchange broker, we’re going to make every effort to close in that 45-day period. I’m not going to go into the never, never land of the 46th day where those things can go wrong that would kill my exchange.
In the first 2 weeks, we’ll screen every property that meets the objectives of the client, that produce the cash flow they’re after, that are the type of asset that they’re after. If they like 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.
This is only in the first 2 weeks, because I’m going to tell my client in the end of that 2-week period, the third week is going to be reserved for making offers, negotiating counter offers and solidifying the transaction. I’m going to have that property under contract by the end of the third week. It’s critical that I do this.
The fourth week and onward are going to be reserved for my due diligence. I’m going to do my walk through inspections, hopefully the beginning of the fourth week. I’m going to be able to identify is this property as I perceived it to be as we were making the offer. In some instances it’s a train wreck. We back off, we start over, but I’m not starting over at the 46th day where I can’t find a substitute replacement property but now the fifth and sixth week I’m done my due diligence.
The appraisal has been called for. Hopefully at about the second or third week, the appraiser comes on board, lets me know if I’ve got concerns and I’m going to be as close as ready to close at the end of the sixth week, which is the end of the 45-day period as I possibly can.
If you’ll follow this plan, your probability of success is huge.