95 Percent Identification Strategy

The ninety five percent rule is the least commonly used of the three identification counting methods available to a Chicago, IL investor, and it exists for situations that do not fit within either the three property rule's count limit or the two hundred percent rule's value ceiling. Under this rule, an investor can identify any number of replacement properties with no limit on count or combined value, but there is a strict requirement attached, the investor must actually acquire at least ninety five percent of the total fair market value of everything identified. Because that acquisition threshold is high and largely outside an investor's direct control once due diligence on multiple properties begins, the ninety five percent rule carries more risk than the other two identification methods and is generally used only when the specific situation calls for it.

Why the Ninety Five Percent Threshold Is High Risk

Consider a Chicago, IL investor who identifies eight properties under the ninety five percent rule because none of the other two rules fit the situation. If financing falls through on even one or two of those properties, or if due diligence reveals a problem that removes a property from consideration, the investor needs the properties that do close to represent at least ninety five percent of the combined value of all eight properties originally identified. Falling short of that threshold, even by a small margin, generally causes the entire exchange to fail, not just the portion tied to the property that did not close, which is a meaningfully different consequence than under the three property or two hundred percent rules, where an investor simply does not get credit for properties that never close but the rest of the exchange can still proceed. This all or largely all outcome is why the ninety five percent rule is reserved for specific situations rather than used as a general purpose identification strategy.

When the Ninety Five Percent Rule Fits a Chicago, IL Investor's Situation

The ninety five percent rule tends to come up when an investor genuinely needs to identify more properties than the two hundred percent rule's value ceiling would allow, for example when a relinquished property sale is relatively small but the investor wants a long list of lower priced candidate properties to choose from, pushing combined identified value well past two hundred percent of the relinquished property's value. It can also fit situations where an investor has very high confidence in closing on nearly everything identified, such as a portfolio purchase already substantially negotiated before the forty five day period begins. Because of the acquisition threshold's unforgiving nature, using the ninety five percent rule generally calls for more conservative, well vetted candidate properties on the identification list rather than speculative options included just to preserve optionality, which is the opposite instinct many investors bring when they first hear that the rule has no property count or value cap.

Tracking acquisition progress against the ninety five percent threshold requires ongoing attention throughout the one hundred eighty day window, not just a calculation done once at the time of identification, since the actual acquisition percentage depends on which properties close and at what final price, which can shift from the originally identified fair market values as negotiations conclude. A Chicago, IL investor using this rule should maintain a running tally of closed acquisition value against total identified value as each property either closes or falls out of consideration, so there is early warning if the trajectory is heading toward a shortfall rather than discovering the problem only after day one hundred eighty has already passed and it is too late to add another property to bridge the gap. This ongoing tracking is one of the more operationally demanding aspects of the ninety five percent rule compared to the simpler bookkeeping required under the three property rule.