Seeking Advice on this 1031 situation

4 Replies

I'm looking to purchase a multi unit property with my 2 cousins. They both recently sold a property for ~150k and they plan to use that for DP for our joint property.  I will be putting in a similar amount of cash.  Any advice for keeping this in lines with 1031 rules? 

We will be using conventional financing for a 4 unit property.  Can we all be on the loan? Is it required that they be on the loan? Or is their names being on the title sufficient? Any other things to look out for? 

Thanks

Zach 

If they have already sold the property and have the sale proceeds in their possession, then it is too late for a 1031.  Their sale is a taxable event.  

I believe a successful 1031 requires that the relinquished property and the replacement property be titled the same way.  A qualified QI needs to be involved in the transaction before the relinquished property is sold.  

What do you mean by titled the same way? Is a QI a Qualified Intermediary? If so, they don't personally have the cash it is setup for 1031 but I was wondering the complications of them adding me into a deal.

Hi Zach,

It depends on the numbers in the transaction. 

The would need to make sure that their reinvestment amounts have been met before they add you.  For example, if they both owned the relinquished property together and sold it for $150,000, then they both need to acquire replacement property valued at $150,000 or more (technically its the net sale price, not the gross sale price).  If the property that you intend to acquire is worth say $225,000, then you could acquire a 1/3 interest ($75,000 in value) and they could acquire a 2/3 interest ($150,000 in value). 

If they sold the relinquished property as individuals (tenants-in-common), then they would need to acquire title as individuals (tenants-in-common).  There are some exceptions such as living trusts, single member limited liability companies, land trusts, and Delaware Statutory Trusts. 

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