What happens when you need to make a down payment on the purchase of your replacement property if you've already closed on the sale and your qualified intermediary is sitting on a big pile of your exchange funds?
Option 1 - Purchase Agreement
One option is to have a purchase agreement entered into with the seller of your replacement property and then specify that within 2 business days your qualified intermediary will wire transfer in the down payment or earnest money deposit for that purchase.
By giving yourself a couple of days you will have time to take that purchase agreement, give it to the intermediary, and have them prepare the necessary 1031 assignment documents and wire disbursement request forms. That allows the intermediary to step into your shoes as the buyer and provide notice to the seller of your assignment of the purchase agreement (to the qualified intermediary). Once that's done the intermediary can advance your earnest money deposit or for that matter the entire purchase price if you want them to and that money can be used to acquire your replacement property.
Option 2 - Earnest Money
Alternatively if it's too much rigmarole to get you qualified intermediary to wire the money and you're out there making deals fast & furious, the other way to do it is to have you write your own earnest money check (out of your own pocket) and give it to the seller with your offer. That might make your offer more attractive or enticing and you can always get your deposit back by stating in the purchase agreement my deposit is just a deposit I don't want it to be applied towards the purchase price and at closing you can give me back my earnest money deposit because I'm coming in with a truckload of 1031 funds that I would apply towards the purchase price instead.
- 1031 Hotline: If you have questions about down payments on replacement properties, feel free to call me at 612-643-1031.
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