Top 10 Best Tips for a Successful NNN 1031 Exchange Closing

Hi, my name is Alex Casablanca, Managing Broker at Casablanca Triple Net Advisors. Today I am going to talk to you about the Top 10 Best Tips for a Successful NNN 1031 Exchange Closing.

Finding a replacement property for your 1031 Exchange and being able to complete a successful closing can be stressful for most investors. Meeting all the requirements and deadlines that the IRS imposes definitely adds complexity to the process. 

However, it is very important that you team up with the right team of professionals that can help you navigate the complexities of the process and make the process less stressful and efficient. 

So, let’s get started with the Top 10 Best Tips for a Successful NNN 1031 Exchange Closing

1- Start Early

Starting early is one of the most important factors for a successful 1031 Exchange. In the early stages, you must complete four key actions that will set you up for a successful closing.

First, start by assembling an experienced group of key professionals that will guide you through a successful closing. I will tell you more about who are those professionals later on.

Second, once the Due diligence of the property that you are selling expires and you have a clear picture of when you are going to close, as your Buyer’s Broker we will start actively looking for properties within your criteria, and assist you in start submitting offers. 

Third, once you close on your property is when we should start actively submitting offers and start narrowing your options with the objective of determining which property will be that #1 on the list.

Four, once you close on your property get a proof of funds letter from your 1031 intermediary and forward it to your Buyer’s Broker, that will reinforce the offers and will give them more credibility.

2-Hire a Competent and Experienced NNN Buyer Broker 

It is very important that you team up early in the process with a competent and experienced NNN Buyer’s Broker that can represent your interests exclusively. Remember, the Seller’s Broker represents the best interest of the Seller, not your interests as a Buyer. If you call the Seller’s broker directly, you will be indirectly choosing them as your broker, a broker that does not represent your interests.

As your Buyer’s Broker we will assist you with market research, property evaluation and selection, offer submissions and negotiations, due diligence, and closing. We work quickly and decisively towards finding for your consideration as many properties as possible within your criteria. 

As your Buyer’s Broker, we have the knowledge, expertise, and connections with Sellers and Brokers’ colleagues to negotiate the best price and terms for you. 

Remember,  we represent our Buyers for Free since we get paid by the Seller, so you will be receiving our expert advice and representation at no additional cost to you. In addition, we pay for our Buyer’s closing costs up to a maximum of $10,000.

3- Hire a competent and experienced Real Estate Attorney with previous experience with NNN transactions

Once we get your offer accepted, your attorney should be ready to receive the first draft of the purchase agreement and start negotiating with the Seller’s attorney the terms and conditions of the contract, so you can secure the property under contract as quickly as possible. Once the property is under contract, your attorney should diligently review all the due diligence documents and assist you all the way through the closing. Attorney-related delays can put in jeopardy your transaction.

4-Select your 1031 Exchange intermediary company

Your 1031 Exchange Intermediary will be the custodian and administrator of your 1031 Exchange, so it is important that you select them early in the process. This company will be the receivership of the funds from the sale of the property that you are selling. It is very important that you chose the company in advance, that you send them a copy of the purchase agreement of the property that you are selling, and make all the arrangements for them to receive the proceeds of the sale of your property on the day of your closing. There are many reputable companies in the US that are qualified as 1031 Exchange intermediaries.

5- Select your Accountant or Tax Attorney

You must also team up with a knowledgeable Accountant or Tax Attorney with experience in 1031 Exchange Transaction. Preferably should be the one that will end up filing your taxes the next year which will include the reporting of your 1031 Exchange. He or She will assist you in making sure that you comply with all tax rules and IRS requisites for a qualified 1031 Exchange.

6- Select Your Financing Company if you have a debt to replace

If you have an existing loan in the property that you are selling, the IRS requires that you substitute that debt with an equal or higher financing. If you have to replace an existing financing start consulting with your bank early and initiate the application process. Have in mind that in the current high-interest rate environment that we are the interest rate of your new loan could be substantially higher than the one you currently have. 

7- Determine Your Acquisition Criteria

Your acquisition criteria will be a determinant in the success of your transaction. Once we as your Broker can have a clear understanding of your criteria we will focus on those guidelines to look for properties that are most closely aligned with your criteria. 

Your acquisition criteria should include:

First, Tenants and Industries of Interest to Focus on. It is very important to have a clear picture of the type of Tenants and Industries that you want to focus on. Every industry has its own complexities and it is very important to have a clear understanding of who are the leaders of that industry and which Tenants are the ones that you have the most interest in.

Second, determine the Location & States to focus on. Location is one of the most important factors, Do not limit yourself to just one state or one area. The best property is not the one that is closer to where you live, the best property is the one in the best location, the best tenant, and the best Real Estate fundamentals.

Third, determine Price Target, minimum Cap Rate, and years remaining on the lease. Having a clear price target from the beginning is very important, so as your Broker, we can focus on properties within that target. Remember that the IRS allows you to buy a property at a higher price than the one you are Selling. The minimum cap rate and years remaining on the lease are also very important to determine in advance, so again we can focus on properties within those guidelines.

8- Have your #1 Property Selection Under Contract before Your 45 days Expire

This one is the absolute most important. The only way to secure a property is by putting it under contract. Some investors focus on submitting as many offers as they can, but by submitting offers or even having them accepted you don’t secure a property. 

As your Broker, we work with the goal of helping you to have your #1 property selection under contract before your 45 days identification period expires. Your Real Estate Attorney will be a key part of that process as well, he or she should move quickly and decisively reviewing all the documentation, so you can secure your #1 option under contract as quickly as possible.

Then once you have your first selection under contract, we will focus on identifying your property options #2 and #3. Ideally, we should have offers accepted for those properties, and they should be available at the moment in time that you select them. Remember, have in mind that although you will select them and put them on your list they will not be secured unless you put them under contract as well. 

9- Go and Visit the Property

Once you have your #1 property selection under contract if you are planning to go and see the property, arrange a visit to the property as quickly as possible, so you can be sure early in the process that you feel comfortable and you don’t have any objections with the property or the location.

10-Close on your #1 Property Selection 60 Days After Your Closing Date

Although the IRS gives you a total of 180 days to close since the day that you closed on your property, I always recommend my clients to do their searching early to complete the closing no later than 60 days after your closing date, so you can avoid hassles and worries. 

There are some circumstances in which the closing could get delayed, for example when you are buying a new construction property you have to wait until the store opens for the business to close. Even in those circumstances, ideally, you should be able to close no later than 90 after you close on your property.

In Summary, the Top 10 Tips for a Successful NNN 1031 Exchange Closing Are:

  1. Start Early by assembling an experienced group of professionals
  2. Hire a Competent and Experienced NNN Buyer’s Broker
  3. Hire a competent and Experienced Real Estate Attorney with experience in NNN transactions.
  4. Select Your 1031 Exchange Intermediary Company
  5. Select your Accountant or Tax Attorney
  6. Select your Bank or Financing Company if you have a debt to replace
  7. Determine Your Acquisition Criteria
  8. Have your #1 Property Selection Under Contract on or before your 45 days ID period expires
  9. Arrange a Visit to the Property that you put under contract
  10. Close on your first property selection at least 60 days after you close on your property.

Although a 1031 Exchange process could be seen as stressful and overwhelming, the key is to start early and hire the key competent professionals to assist you. If you do that, the process can really become really straightforward and stress-free.

At Casablanca, we specialize in representing NNN Buyers and 1031 Exchange Investors Nationwide USA. We have the knowledge and expertise to guide you along the way from market research, identifying potential properties, submitting offers and negotiating them, due diligence, up to the closing table. We have helped many NNN Buyers and 1031 Exchange Investors in finding and negotiating the best property according to their investment goals and risk tolerance. We have the patience and expertise to work with our client at their own pace.

Moreover, we represent our Buyer’s for Free since we get paid from the Seller, and we also Pay for our Buyer’s Closing costs up to a maximum of $10k. This incentive will offset or cover completely the major Buyer’s closing costs expenses such as Title Fees, Attorney Fees, Recording Fees, among others. We are the Brokers that give you more in exchange for your trust. 

If you have any questions feel free to contact me directly at 407-205-7570 or you can also email me at [email protected]. Feel free to call me anytime at your convenience, I’m always available for my clients. Thank you very much for watching this video and I’m looking forward to speaking with you.