Boot on a 1031 Exchange

[Frank Harrington]

You have a property worth $800k. Mortgage is $300k. You sell the property and have $500k profit proceeds (for simplicity, no costs).

For a 1031 can you buy two replacement rental properties; One for $400k paid in full, zero mortgage. Then a second for $400k or more with 100k down and at least a $300k mortgage?

After the close of the 1031 in the above scenaio, could you then cash out refinance the fully paid property and make use of the cash? You would have lower fees and costs than trying this with the two properties.

The thinking is this. Getting cash flow from both properties after a 65% or so loan may work but you are realy left with no cash. To get cash after closing you would incur costs and fees on the two loans.

Or you would have great cash flow from one property and hopefully debt coverage on the other.