I’ve avoided blogging about this deal for fear of jinxing myself, but I’m close to completing a 1031 exchange that I initiated earlier in the year to comply with a
New Year’s Resolution that I’d made to sell a high-end loft and trade it for a multi-family property w/ better income potential.
But now w/ all the work done and a closing set for Friday I think it’s safe to mention.
I learn something with every deal that I do. Here’s a couple of challenges that popped up on this one.
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No comps: I’m buying an updated four-unit complex in the trendy Montrose section of Houston. There basically are two types of properties that you find in the comps: teardowns and new construction. The building that I’m buying was originally built in the ‘30s, but has been updated with new wood floors, central air conditioning, a raised outdoor deck, and a number of amenities that make it a rare building. Which means: there’s nothing to compare it to. Which in turn means: you have to trust your numbers because there’s really not much of a “market”.
- Time pressures: The sale side of the 1031 was triggered by my selling the property to the tenant who I was renting to. This was fortuitous in that I avoided vacancy, sales commissions, and all of the other hassles and expenses that are associated w/ marketing a property, but it also happened a bit quicker than I had expected – which meant that I needed to be expeditious in my search in order to identify a replacement property within the IRS mandated 45 day window. But nothing like a deadline to keep you from getting paralyzed by the analysis.
- Challenging negotiation: The goal of a negotiation is to efficiently reach a wise agreement in an ethical way. This is easies when there is some alignment of the goals of the two parties and they negotiate directly. Well in this case the “alignment” part was potentially there. But the other elements weren’t. First: both the sellers and I were using agents – that in itself injects two additional degrees of separation into the negotiation, which makes effective communication more difficult. Add to this the fact that the seller was not a single individual; the property was owned by a group of three physicians who had teamed up on the investment, and who, based on their disjointed and confusing responses, had conflicting agendas. Messy. Once I get this deal tied up I’ll write about how some of the Getting to Yes principles helped keep the deal from stalling.
But...looks like we're close to the finish line on this deal. And appropriately, the deal is set to close on Friday the 13th. Not that I'm superstitious or anything...