Contingent now or wait three weeks?

mojomomJune 10, 2012

We're selling a relativly small tract of timberland and structuring it as a 1031 exchange. We are set to close in about three weeks, it's a cash sale, and all contingencies have been satisfied, so we're very confident it will close, but because anything can happen we don't want to offer on the replacement without a contingency. We only have 45 days after the timberland closing to identify the replacement property. We are now in the process of identifying a residential rental property as the replacement property.

We've found a house that seems ideal. The market where we're buying is slow, but picking up especially for this type of property and price range. The property is slightly overpriced according to comps and has a not ugly, but bland, curb appeal which our realtor said is probably holding it back (the interior is very nice for this type of property). Our target price for this property is about 93% of list - that's what the comps are telling us and in this market this type of property has been selling for about 91% of list. The house is basically an 1800 sf starter type home, built in the mid 90s, in an excellent, family friendly, location and will rent well. While this house is our first choice there are other good contenders, so we are comfortable that we'll be able to timely identify a good replacement if this one doesn't work out.

My question is whether to go ahead and make an offer on the contingent upon the timberland closing or take a chance that the house will still be available in 2-3 weeks? Other than the short term contingency, it would be a clean cash offer - just normal inspection, etc. Sellers, how would you react to a very short term contingency? Realtors on board, what do you think? If it makes a difference, this is not a short sale or bank owned property. I think that the seller is looking to move-up, but don't know for sure. I don't know how long the property has been on the market - I plan on asking my realtor that tomorrow- but from the MLS number, it has probably been on the market at least 6 months.

We'll visit with our realtor tomorrow and ask her advice too, of course, and we really trust her insights, but she's out of town this weekend on a well-deserved break and we don't want her to be in work mode today.

(Please, while I will be very grateful for any advice related to making a contingent offer, we don't need any legal, tax, or investment advice -- I'm a lawyer (commercial lit) but i have some basic knowledge of tax laws and I've run the 1031 details by one of my tax partners and our CPA is also involved. As an investment, this works well for us for lots of financial as well as family reasons - anticipate a decent cap rate at our target price after costs of insurance, property taxes, maintence, etc. improves investment mix, daughter is a property manager in this location and has strong first hand knowledge of rental rates and desireabilty for the type of tenants we want (as does our realtor), we intend to retire to this town in 6-7 years (but not to this property) etc. Also, while we're not buying for resale, we are only considering properties that our realtor and we agree seem to be poised to take advantage of any potential improvement in the market down the road - ruling out older properties and sticking to prime locations.)

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I'd go ahead and make the offer now. Include the info on your contingency (that you're under contract, all its contingencies have been met, and you expect closing within 3 weeks) and that it's a cash offer. To me, that's a strong offer. If I were a seller that had a house on the market a few weeks, I'd probably think twice, but if I'd been out 6 months, I'd likely accept it if the price was good.

Heck, it'll probably take a week or so to come to terms. And you can promise to have the inspection done within a week, to show your good faith.

    Bookmark   June 10, 2012 at 4:59PM
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Thanks, Weedy! Good idea about the inspection. As confident as I am that the timberland sale will close, going ahead and spending the funds for inspection asap is well worth the risk.

    Bookmark   June 10, 2012 at 5:45PM
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Number one rule in RE investing is to get the property under YOUR control... make that offer.

    Bookmark   June 11, 2012 at 10:27PM
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Thanks, NC! Looks like that's where we are headed. We will at least make the offer and see where it goes.

    Bookmark   June 11, 2012 at 11:51PM
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Well, it's 3 weeks later and we closed on the land sale today and are under contract on the "replacement" rental property set to close at the end of the month. Title work on that came back clean today and inspection set for Thursday. Actually, after offering based on comps and then walking away from the house mentioned in my original post, we're under contract on a different property. It's newer, more upscale, and we were able to get it slighly under good recent comps. It should very rent well, but we won't have to worry about rentals for a while because we've agreed on the terms of a lease to rent it back to the Sellers while they build - a win-win for everyone!

    Bookmark   July 3, 2012 at 10:51PM
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