Savvy investors like to think ahead when they’re doing a 1031 exchange. Ideally, you want to gain the advantage of locking up a replacement property before selling the old relinquished property. Here’s a common question people ask in this situation:
“Is it permissible for me to sign a purchase agreement or an option agreement to contractually find a seller to sell me a replacement property even before I close on my old relinquished property? Will that somehow foul up my 1031 exchange?”
Locking Up a Replacement Property
The answer is you can lock up a replacement property, you just can’t close on it before you’ve first disposed of the old relinquished property. So signing a purchase agreement, or an option agreement are proven practices. You just don’t want to inadvertently acquire them before you sell the old relinquished property.
Reverse 1031 Exchange
That being said, if you have to close on the replacement property first (before selling your relinquished property) there’s a solution for that too.