New Construction as Replacement Property   

   The Business of Solving Real Estate Problems

               Real Estate Exchanging

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     Completing an Exchange using New Construction

    There are two methods for an exchangor to work with a contractor

1. As the Exchangor you contract with a builder to purchase a property, which will be completed, and closed, prior to the end of the 180 day exchange period. 

As one of your replacement properties, you can choose to purchase the land prior to construction.

The least expensive and easiest method, is to purchase the land and building from the builder at the time of closing.  

2. As the Exchangor you can also contract to do a Build-Out Exchange.

This is an exchange where you finance the construction of the property using a draw schedule.

Working with the builder and the intermediary the builder draws on the exchange proceeds when certain steps of the construction are completed.

This arrangement can be a little complicated and create some risk for you and the Intermediary, and may increase the cost of your exchange, but you may find a builder looking for work and it will be a Win -Win for everyone.

The important thing to remember is the construction needs to be completed in the required 180 day exchange closing period.

Its also important to remember the Purchase and Sale agreement need to contain language which requires the builder to bear the responsibility for the exchangors taxes if the exchange fails, due to a late completion.

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