I am just about to open escrow on the sale of a rental property. I am expecting around $125,000 proceeds which I can use for a down payment on a park. I have $20,000.00 set aside for expenses or emergencies in addition to the $125,000.00. It’s not very much money and will be even less if the government cuts into it, hence, the reason for the 1031 exchange. I am in California but willing to (probably forced to) buy out of state. I prefer the warm climates (like many) but most of all I want to buy a good park and make a smart deal. Having said all of that, I am seeking advice on what should be my priorities (and other gratuitous words of wisdom). I have been to the boot camp and read and understand the material, but due to my limited funds, and based on the parks I have reviewed for sale, I know I will have to compromise. Right now I am feeling inclined to try and get a park with as many spaces as I can in an area where demand is solid. I want a park large enough to support a manager. If it has private utilities, then although I was told to stay away, perhaps that will have to be my compromise. Perhaps it will have to be taking on some park owned homes, or something else. From what I can see offered in my price range, I don’t get to have it all.
Any guidance in prioritizing will be very much appreciated.
I would work with the buyer on your current property. There are a few options you can do to delay the clock. Either they can delay the closing until you find a replacement or they can lease the property from you until you can find a replacement. There is no sense in putting a clock on your money if you can avoid it.
On priorities, you need to find 10-15 markets that make sense based on the criteria you listed and then send out mailers to all of the owners (I would include that you are a 1031 buyer), call all of the owners, call some local commercial brokers who can also do the previous two actions on your behalf. 45 days to identify 3 replacements is just not enough time if you haven’t even started marketing for deals yet.
Shelly, I have a small park for sale in southeast Arizona. 14 spaces with 13 homes and a duplex. $125k would be a fine down payment, and I’d carry the balance for several years. If you’re interested, shoot me an email at dkshinnick@gmail.com and I’ll send you a PDF describing the park.
Thanks for the reply! Those are very good suggestions. I didn’t even consider delaying the closing because I was more concerned about not losing my buyer. I think I’ll look into that. In any event, even with the 35 day escrow which I currently have, the 45 days doesn’t begin to run until closing, so that’s over two months to identify, and then I will have 6 months to close on the park. I hope that is enough time if buyer doesn’t agree to delay.
Based on your advice to use the mailings, I surmise that relying on advertised sales on the internet will not be sufficient. I better get busy.
Off market deals are usually the best but they also take the most time to get done. One of our most recent properties took 16 months from the first touch to the close. We are typically averaging about 4-6 months form first touch to contract. Brokers can close this time frame a little, but only when they have a pre-existing relationship with the owner.
So, screen your brokers on the front end of your search against a list of properties you are interested in acquiring in that market. If they tell you they have a relationship with a few of the owners, then let them work those sellers for you using their preexisting relationship.
Remember one smart experienced comment from a friend–sometimes it might be cheaper to pay the taxes than rushing into a deal that is plagued with problems. We had a 1031 last spring and we did not end up buying another park even though we had much experience–30 years.
Shelly,
more then likely you will end up paying some sort of taxes.
1031’s aren’t about just the "proceeds"
You must not only pay equal or greater then your sale, but if you had a loan, you must also get a new loan equal or greater. If you don’t do all you will not satisfy a complete 1031 and end of paying taxes anyways.
Carl is correct, we too have sold and just paid the taxes then went and bought other stuff, due to large amounts of money needed to satisfy.
Your not dealing with that large of sum so I’m sure your acct should be able to get your liability down quite low.
Good luck