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1031 Exchanges

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Michael Hayworth
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  • Fort Worth, TX
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1031 Exchange Into a Property Already Under Contract?

Michael Hayworth
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  • Contractor
  • Fort Worth, TX
Posted May 30 2022, 04:23

I have a mid-size mult-family unit under contract. There is an opportunity to sell one of my existing 4plexes quickly through a wholesaler to help with cash flow. Is it possiible to 1031 that money into the purchase of the larger property? My understanding is that I can't have taken title to any part of it, which wouldn't be the case, but it's my first 1031 Exchange and it seems worth checking. I hear about having to identify lists of properties for potential purchase, does already having a property under contract affect that?

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Chris Svendsen
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  • Front Royal, VA
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Chris Svendsen
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  • Front Royal, VA
Replied May 30 2022, 04:58
Quote from @Michael Hayworth:

I have a mid-size mult-family unit under contract. There is an opportunity to sell one of my existing 4plexes quickly through a wholesaler to help with cash flow. Is it possiible to 1031 that money into the purchase of the larger property? My understanding is that I can't have taken title to any part of it, which wouldn't be the case, but it's my first 1031 Exchange and it seems worth checking. I hear about having to identify lists of properties for potential purchase, does already having a property under contract affect that?


 I believe you are fine if only under contract but talk to a 1031 exchange company right away.  The cost they charge is minimal for the service.  We sold 1 house and exchanged into 2 houses and believe it cost less than $400 total to make sure government was happy.

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Alex Olson
  • Real Estate Agent
  • Kansas City Metro
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Alex Olson
  • Real Estate Agent
  • Kansas City Metro
Replied May 30 2022, 15:45
Quote from @Michael Hayworth:

I have a mid-size mult-family unit under contract. There is an opportunity to sell one of my existing 4plexes quickly through a wholesaler to help with cash flow. Is it possiible to 1031 that money into the purchase of the larger property? My understanding is that I can't have taken title to any part of it, which wouldn't be the case, but it's my first 1031 Exchange and it seems worth checking. I hear about having to identify lists of properties for potential purchase, does already having a property under contract affect that?


 How long have you owned the fourplex that you are willing to sell? If it is less than Year may be a tough sell to the IRS but there are always exceptions. 

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Michael Hayworth
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Michael Hayworth
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  • Fort Worth, TX
Replied May 31 2022, 04:21
Quote from @Alex Olson:

 How long have you owned the fourplex that you are willing to sell? If it is less than Year may be a tough sell to the IRS but there are always exceptions. 


 I've owned the fourplex for many years. Shouldn't be any issue on that end. My entire model seems like a good fit for 1031. We rarely buy flips. We buy rentals, always intend to hold them for awhile, then evaluate between each tenant whether we should sell the property or not. 

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Dave Foster
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#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
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Dave Foster
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#1 1031 Exchanges Contributor
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied May 31 2022, 14:23

@Michael Hayworth, You can go into contract for your new property before you close the sale of your old property.  In fact that is a very strong strategic move to alleviate the tight time lines of the 1031.  But you must close the sale of your old property before you take title to the new property.

And the QI for the 1031 must be in place prior to the sale of your old property.  Now that you've got escrow opened up for the old property it is the perfect time to get your QI involved.