First time 1031, looking for advice

7 Replies

Hi! We are new to investing and BP and jumped in head first and went pro—that's how I roll. HA ;D

Brief Background:

We have a 2BR SF Bay Area condo that we'd like to 1031 in 2018 when our current tenant's lease is up at end of May. I'm planning ahead because we've never done this before and want to get educated and be prepared. 

We have approximately $150K of equity and would like to exchange it for a multiplex in the San Diego area. I'm starting to analyze properties just to get a sense of what we're looking at, but would love to hear from folks with experience things like basic steps, expecting the unexpected, what they wish they knew the first time they did an exchange—or any other tidbits you can offer a newbie from an experienced point of view. 

In the right situation, we may consider partnering. 

I don't want to overwhelm you with unnecessary information, but happy to provide answers to any questions you might have.

Thanks so much in advance!


@Elaine Hester Well done with your preparation.  From the 1031 front there's so much that can affect you.  So you'll really want to immerse yourself in that aspect as much as the end game and structure.

Thank you for your super prompt reply @Dave Foster , much appreciated!

Seeing that you are a 1031 exchange Qualified Intermediary, can you tell me a bit about what you do and if you advise hiring a professional such as yourself  when doing the exchange. Since I've only worked with a realtor in the past, this is all new to me so I appreciate anything you can share.

@Elaine Hester 1031 exchanges can be complicated and there are a number of requirements that an investor must satisfy to have a successful transaction. The first step is to start discussing your transaction with Qualified Intermediaries. I would recommend choosing a company that is insured and bonded, reputable, reliable, and experienced. They should be able to guide you as you proceed to make sure you are following necessary deadlines and requirements. There are certainly things that can go wrong but if you’re working with a good QI and speak with them prior to making any major decisions, it should be a stress free experience. 

@Elaine Hester , Yep, I'm one of those folks.  The qualified intermediary is a required part of a 1031.  They must be in place prior to the closing of your sale to begin the 1031.  We don't replace any of your other professionals but work hand in hand with the title company or attorney closing your sale and subsequent purchase to document your exchange and ensure property transfer of money.

The 1031 is extremely powerful in it's ability to let you defer paying tax on the gain from a sale and use those deferred taxes in subsequent purchases.  As long as you continue to hold or as long as you 1031 whenever you sell you an defer those taxes indefinitely.  We have clients on their 2nd and 3rd generation of tax deferral on portfolios.

But like everything of value, the devil is in the details.  1031s come with some pretty restrictive procedural requirements.  They're not too onerous but do require attention.  That's another big role for the QI before and during the exchange.

I've pmd you to forward a white paper on the 1031 process that many find valuable.

@Elaine Hester I have no experience with 1031 exchanges but I live in Poway and specialize in duplex to quad buy n hold in a nearby city just to the North of Poway.  

If you have questions on that aspect of your plans you can PM me and I will try to provide any insight I may have.   I’m not a realtor; so nothing but my opinions (nothing to sell, etc.).  

Good luck

@Elaine Hester I agree there's hoops to jump through in order to execute a 1031 exchange but the tax deferred benefits are well worth it. Assuming your bay area property is in good condition, you shouldn't have a problem selling since your market is hot. On the buy side here in San Diego, it's also a seller's market so it's vital to have your property criteria (location, type, condition, etc.) dialed in so you can act fast in buying. One way to mitigate risk is to have an agent with leads for off market properties so you're not competing with multiple buyers. Feel free to contact me with questions and best of luck! 

Thanks Casey! I'm still learning about RE and curious about your statement, "one way to mitigate risk is to have an agent with leads for off market properties so you're not competing with multiple buyers" ... do only certain agents have off market leads? What is their strategy for finding these leads? and how would one find these agents?

Thanks once again!

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