The 45-Day Countdown: Day 40

This is probably going to be the most boring blog post you’ve ever read, unless you’re really into real estate contracts and 1031 exchanges. I mean, if you’re already even a little bit tired of hearing me talk about houses, don’t even start with this one. I’m totally with you – I’m tired of hearing myself talk about houses. For me, it’s been stressful!

We made an offer on our third and final (hopefully final, right?!?) rental purchase on Friday (Peregrine Road). We offered list price, and a closing date of July 3.  It’s safer to close prior to the end of our 45-day identification period, but we can’t, because we got slowed down so much by the septic fiasco on the first house we tried to buy.

Here’s why it’s safer to be completely closed by the end of the identification period: we can’t use the 1031 exchange to buy any property we haven’t identified during our 45-day identification period. Our 45-days is up on Monday (June 26). So if, for some reason, one of our properties doesn’t close, I can’t go find another one after Monday. I have to have everything identified by Monday.

What I can do, is identify a couple extra back-up properties on Monday – I just list them on the form. Those are the ones I could buy later, if something went wrong with one of the ones I’m trying to buy now. But there’s a limit to how many back-up properties I can list (usually 3; in my case it depends on the value of the properties, but it works out to be 3.)  But I’m not under contract with those properties. They’re just out there for sale. So someone else could still buy them, meanwhile. And the longer I have to leave them sitting there available, the more likely someone else would buy them.

I have to identify back-up properties by Monday, but since there’s a chance I might need to buy one of them later, if my seller backs out of a deal, or something happens between Monday and closing, I want as short of a period between Monday and closing as possible.

So for example, if I were to close on my third house sometime in August, and something went wrong during all that time and I failed to close, none of my back-up houses that I identified on Monday would still be available to buy in August. Other people would have bought them by then. Then I would pay $75,000 in taxes. Ouch, right? People think of capital gains as only 15%, but in our case it’s 35%, for a lot of complicated reasons including depreciation recapture, plus onerous California tax rates.

So, when I made an offer on the final house, I put the closing date for July 3, which is as soon as realistically possible to get inspections done and title cleared. That leaves only a 9 day gap between Monday and closing, where something could go wrong. And hopefully at least one of the 3 back-up properties would still be available, 9 days after being identified. So not a big risk.

On Saturday, our agent called and said that we were in a bidding war, and tried to see how lenient we would be with our terms. We agreed to an extra $5,000 in addition to the purchase price, and agreed the owners could stay until July 24 because their new place isn’t ready yet. So I expected a counter offer with those terms, and a rent-back request. Rent-back is when the owner rents the house back from you after you bought it, usually for a month or so while they find and close on their new house. It’s extremely common in California, or wherever property is expensive. It’s not as common in New Mexico.

But we never got a counter offer. On Sunday, the house went pending. So once again, I assumed we didn’t get the house. But when I spoke with my agent, it turns out they accepted our offer, yay!

But my agent seemed to think we weren’t closing until July 24. Huh? I can’t identify back-up property that would still be available by the end of July. Anything sitting on the market that long isn’t worth buying. Plus, our offer was to close on July 3, and if they didn’t counter offer, that means they accepted our offer, right?

My agent got irritated and said we had authorized a July 24 close when we spoke on Saturday. And I said, we’re fine with them occupying until the 24th, but I want a rent-back agreement. We’re not postponing closing.

Meanwhile, I kept asking my agent to set me up with a new on-line search, because I need to identify my back-up houses for the 1031 exchange form by Monday. But I don’t think that she’s ever done a 1031 exchange before, so she didn’t understand when I said that I need to identify back-ups. I think that she thought I was just trying to get out of the purchase of this house and buy a different one.

So it got a little tense. But finally today, she figured out what I was talking about, and negotiated a rent-back agreement (in our attempt to be cooperative, we’re actually giving them free rent for the 20-odd days).

She sent me the amendment with the rent-back agreement, and I was confused, because it said we were changing the closing date from the 24th to the 3rd. I called her and said I didn’t think the wording was right, because the purchase agreement already says the 3rd, so we don’t need to change the closing date. We just need to give them their 22 days of occupancy after closing.

Turns out – get this – turns out, the sellers changed the closing date from the 3rd to the 24th on the paperwork after we signed it (thinking it was fine, and thinking that we had agreed to it), and they initialed the changes. But nobody ever told us. We never saw, or initialed, those changes. So then I wondered – did they change the price too?!?

Actually, they didn’t. We had authorized an additional $5,000, which they didn’t write in, but they did write in the new closing date, based on a misunderstanding. So we’re still at list price, which is good, but the closing date and the rent-back are not settled yet.

We’re trying to get it all straightened out. So far today, my agent has written two different amendments, both of which have minor issues with them, so hopefully the end to this long tale will be anti-climatic.

John doesn’t know any of this, by the way. Not since Sunday. He flew to San Diego on Monday, and then on to Livermore last night. Monica was here offering moral support for 2 weeks, but she left this morning. So I’m just going to have to nail this all down on my own in the next couple of days. The amount of money is frightening; these rentals are a huge chunk of our retirement, and I’m just trying to do a good job with it.

Tomorrow morning is the inspection on this last house. I’m the only one (other than the inspector) who is going to be there, because John’s still in California and my agent has a doctor appointment. Luckily, the inspector will prepare an inspection report which John can read, even though he won’t be there to talk to the inspector in person.

Wish me luck in the morning. I’m hoping the inspection is good – I really don’t want to have to try to buy yet another house. I’ve sorted through literally hundreds of houses on-line, and looked at dozens in person, with 4 different realtors. And I still have to identify my 3 back-up houses this weekend.

Remember back when I was cheerfully posting photos of every house I was looking at, like a real-life “House Hunter’s” show? It’s so not like that anymore.