I recently purchased a single family with the intent of fixing it up and renting it. As I finished the rehab, I received an attractive offer from a friend who wanted to buy the property. I agreed to sell it and will be closing soon. My question is am I allowed to do a 1031 Exchange since my intent was to buy and hold the property? I never listed the property for sale. It was luck that I got a great offer. I have five rental units and have never flipped a house before.
Technically, yes. You would qualify for the 1031 Exchange because you did have the intent to hold for investment purposes. The issue is that auditors will doubt it because of the rehab work and the short-term hold. So, you can absolutely structure the 1031 Exchange, but you need to document your file as much as possible to demonstrate that you did have the intent to hold but that you got an unanticipated offer out of the blue. Emails, correspondence, notes, contracts, etc., can all be useful documentation to show intent to hold for investment (or hold for rehab and sale depending on the content).
An unsolicited offer can certainly strengthen your case for intent to hold. Back up documentation would be beneficial. Remember that with each one of these "fortunate accidents" your risk of not being able to adequately demonstrate intent grows.
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