Can i do a 1031 into multiple Brrr's.

Question

I would like to sell a single property and buy several SFR's

1. Can you sell one to buy many? What are the complications with this?

2. Can you buy from wholesalers with the 1031? Any issues?

3. Can I include the rehab costs in the "must be more than your selling property"? Goal is to use some of the equity "cash" to pay for the rehab.

4. Does a hard money loan count for the mortgage replacement?

5. Can I then refinance the properties and take cash out to buy more rental units? Complications or issues?

My overall goal is to sell one rental property with great equity, but poor cash flow, and buy several good cash flow properties with about 30% or mor equity per property.

Bill Exeter · Answer

Hi Michael,

There have been numerous changes over the last couple of years regarding what is considered capital improvements vs. repairs/maintenance.  I would check with your accountant since he/she is the one that will have to sign off on whatever you end up doing.  However, in most cases, new cabinets, stoves, ovens, etc., would be considered capital improvements because they are permanently built-in.

Michael Delpier · Answer

Awesome responses!! Thanks!!

@Bill Exeter Thanks this clears up a lot. My intention is to buy and hold. these will become rentals. I am a little confused on capital improvements vs. maintenance. If the house is in need of updating (new cabinets and flooring) and/or repairs (fixing holes in the walls or replacing torn out plumbing) to make it livable for a renter, I would assume this would fall under repairs. This is most if not all the properties I look at for investments. Would new stoves, ovens, fall under capital improvements or maintenance?

Dave Foster · Answer

@Michael Delpier, regarding your refi question - Yes you can refinance the properties you purchase in your 1031 exchange to access the equity for other investment purposes.  The key is to wait until the 1031 is complete and then refinance the replacement properties.

Chris Christianson · Answer

I received a great document from @Bill Exeter on 1031 exchanges.  I'd start by reaching out to him.  Good luck with your deal!

David Alvarado · Answer

My first advice would be to seek a 1031 attorney as they will help guide you through the process. I can't answer all your questions but here is a link to 1031 information from the IRS that should help:

https://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031