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The 3 most common ways 1031 replacement property is identified

The identification rules most used 

 *The 3 property rule, the easiest way to comply is to identify three properties, you must make a formal attempt to name the street address, map and lot number or by a deed reference. You can literally find a location you like and write down 3 street addresses. the problem with this strategy is that you may not be able to negotiate a purchase and sales agreement on any of them (so working with a Realtor, and using property that is listed will help greatly).

*the 200% Rule, If you sell a large property this option provides lots of latitude to acquire many small properties. Some investors will want to diversify their property interests by acquiring more than three properties. If more than three properties are desired, the total value of what is identified must not exceed twice (200%) the value of the property sold.

*the 95% rule, There is one last rule to be aware of during identification, the 95% rule. This allows you to identify as many properties as you desire, at any value. The tricky part of this rule is that you MUST purchase at least 95% of the fair market value of the identified properties. As you can imagine, this rule is not for the faint of Heart!

The sales proceeds cannot touch your hands (or your representatives) so a Qualified Intermediary (QI) is employed to handle the transaction. The QI will produce a contract that must be in place prior to the closing and will direct that the funds be placed under the QI's control for the client's benefit for the purchase of replacement property (s).

There are investors buying and selling property using this method and you can take advantage of these sales if you know the basics of the exchange process and help your client hire a good Qualified Intermediary.

                       

                                                                                                                                                                              Your-White Mountain New Hampshire real Estate Expert

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8 commentsSteve Loynd • June 27 2008 01:30PM
The 3 most common ways 1031 replacement property is identified
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The identification rules most used *The 3 property rule, the easiest way to comply is to identify three properties, you must make a formal attempt to name the street address, map and lot number or by a deed reference. You can literally find a… more