1031 Exchange question

[Aaron Junck]

here goes.. I am a builder... I am in the process of building a 4 plex.. and then after that I will do another .. Plan on having 4 within the next 5 years. All being 75% LTV. If all goes well I am considering in 5 years selling these off and using the proceeds along with some other $ to build an apartment probably around 30 units or so. My question lies in the process of the 1031 exchange.
I know I have to have 1031 qualified intermediary handle it and I have a 180 day to have the process complete, but I am wondering if there is anything I have to do to make this work since in reality I would be the owner from the ground up. It isnt like finding an existing 30 unit complex that someone else owns.

[Bill Exeter]

You are referring to a Build-To-Suit 1031 Exchange (also called an Improvement Exchange or Construction Exchange). Starting with the closing of your sale transaction (relinquished property) you have exactly 45 calendar days to identify what you are going to buy (replacement property) and then you have an additional 135 days to complete the acquisition and build-out for a total of 180 calendar days.

The identification process can be a little tricky when you are doing a Build-To-Suit 1031 Exhange. You have to properly identify the land that you are buying plus the intended improvements to be made.

You also must make sure that you have the intent to complete and then HOLD each property for rental or investment. This means that you must build and then rent for at least 12 months (24 months would be more conservative) in order to demonstrate that you had the intent to hold for investment. If you build and then immediately sell (flip), you are actually holding for sale (not investment) and will technically not qualify for 1031 Exchange treatment.