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Buying 1031 exchanged properties from family members
Hi I'm wondering the possibility of buying a property from my father in law who lives out of state. He would be doing a 1031 exchange for a house he currently owns in his state to a house out here for us to rent in WA. We would then like to do a Lease to Own option from him or a seller finance deal from him.
My question is what would be the best way to do this legally and the best way to structure this. Is this kind of thing possible? If we were do to this and buy the property from him after he 1031 exchanged would he then be able to do another 1031 exchange?
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- Qualified Intermediary for 1031 Exchanges
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@Jonathan Billing, Yes this could work fine.
1 The lease with you needs to be a market lease He needs to collect and report the rents from you. An option to purchase by you is fine. But do not tie the lease to any principle pay down or credit upon purchase. This potentially gives you an equitable interest in the property. And could result in a deemed sale by him to you at signing of the lease. Now a given but a possibility to consider
2. If he wants to give you a discount he can use the annual gift limits to gift you back some of the rent but not affect the lease.
3. When you buy the property from him you will need to hold on to it for 2 years after that in order for his next 1031 exchange to be safe since he would be selling to a related party.
4. You'll probably want to lease it for at least a year before executing the option and him starting his next 1031
- Dave Foster
