Planning my first 1031 exchange

[Jason Sung]

Hi BP community, 

I have a SFH that I lived as primary last year for one year. Recently, I moved out of the house and rented as MTR. It is my first MTR and the return on equity is not good (due to high property tax, insurance, and utilities that I pay), which is about 3%. I plan to sell it (market value ~700k) and buy multiple SFHs.

Suppose I want to buy two SFH, each priced at $700k.

From 700k proceeds, I can put 350k as down payment for each property I am buying. In this case, would it be possible to get mortgages to buy two new properties? I am not sure how the lending works in this case.  Would appreciate any advice. Thanks

[Bill B.]

1) there’s probably zero chance you need to do a 1031, you’re just tying to save 15% capital gains tax on your PROFIT, AFTER selling costs. So if your property went up 10% in the one year since you bought but it costs 10% in closing costs to sell, you owe nothing.  

2) if you hit the lottery and the property is up $400k in one year, move back in to it for one year and you’ll save 100% of the taxes, instead of just differing them.

3) for future reference, pretending this is about a property you rented out for 10 years and is up $400k. Yes, your plan is fine. You must purchase as much as your net sales price. (What you owe and what you paid don’t matter.) and you must use any amount of above your  current debt as a downpayment. You can’t keep any “cash”. AND you must not touch the cash. You must have a QI like @Dave Foster involved before you close.