How should I strucure the sale of 15 single family homes?

11 Replies

Hi Everyone,

 I'm new here. Would love to hear others ideas. I have about 15 single family homes I want to sell (they have equity) and I want to 1031 into some land and then do some construction to the land. I can purchase the land in full myself if need be..
Anyone have any good idea how to do this? I would vacate them all (my houses) out and fix them up and then try to sell them. They will need to be sold one by one.

Thanks

Hi Mike, 

I'd be interested in buying your 15 sfr's. I would purchase with renter's 

Thank you,  Stephen 

Look into the hold requirement of the 1031 exchange. Your selling long term investments for purchase of what i would imagine might be short term investment(s) which may not qualify on 1031. I am sure it can be structured somehow to work though.

There was just a very good podcast about this topic. Check out episode 111 of The Old Capital podcast. It was with Craig Brown and talked about many ins and outs of 1031 options. Well worth your time to listen to it.

This new investment would be long term.

@Mike Gasper what is the average resale value of one of your properties?

Could you obtain a higher sales price selling in packages?

@Mike Gasper , What you're describing can certainly be done under the tax deferral of 1031.  Quite a bit of your direction will be determined by valuation and timing.  

Since you need to sell one by one you will be completing 15 exchanges.  If you sell all as one package on one contract then you can structure it as one exchange.  The real issue here is not expense but timing.  Each exchange will have it's own 45 and 180 day calendar.  You can combine exchanges to purchase your land but that purchase has to fit into the 45 and 180 day window of every property you want to include.  A hurdle but not a huge hurdle if paid attention to.

Valuation is the other issue.  If the cost of the land exceeds the value of the 15 properties then a simple forward 1031 exchange (or 15) will work just fine.  However, remember that in order to defer all tax you must purchase at least as much as you sell.  So if the value of your houses exceeds the value of the land then that's another issue that must be addressed.

A reverse construction exchange might be appropriate for you.  In a reverse, your QI takes title to the land (with the funds provided by you that you mentioned) as what is called the exchange accommodating title holder (EAT).  From the day that the EAT takes title to the land you have 180 days to complete all of your sales (and raise the value of the land to a point that will absorb all of the sales).

So just as an example for readers:  Let's say your land can be purchased for $500K and you want to build a $1mil building on it, and your 15 homes are worth $1.5 mil in aggregate.  You can't simply sell the houses and buy the land or you'll have a huge tax bill.  But if you let your QI form the EAT and take title to the land then you can build the building on it using either construction funding or exchange proceeds as they come in from the sales.  As soon as the land is worth $1.5 mil and you have sold your $1.5 mil of properties (and as long as it is within the 180 day reverse construction window) then you can complete the exchange completely tax deferred.

It's a relatively complex process but could work beautifully for you.

Question? Can I do a reverse exchange for the land? Buy the land now and then sell off enough properties to cover the price of the land and then do a 1031 construction exchange to build on the property with proceeds from the sale of the properties?

@Mike Gasper , once you take title to the land you cannot exchange for improvements on it.  However I think your goal sounds like not coming out of pocket with the land purchase.  

You could start a reverse with the sale of enough houses to buy the land (exchange proceeds are used by the EAT to purchase the land so you still don't have title to it). .  And then sell as many of the rest of the houses within the 180 days of the sale of the first house, using exchange proceeds to complete as much construction as possible.  On the last day you end your exchanges with the purchase of the land and whatever construction is complete.

Dave,

 Thanks for your excellent reply.

 So here is my plan. I already have the land ready to go. I am planning to pay for it myself and then sell some houses to cover the cost of the land doing a 1031 reverse.  While this is all going on I am going to get plans ready and approved to build on the land. Once my exchange is complete can I do a 1031 construction on the land? Selling more houses to fund the construction or as much of it that I can?

It's not going to be easy but if all my timing is right I may be ok.

Did you just inherit these homes?

@Mike Gasper , Good plan - three tweaks.  First, structure the closing of purchase of the land and start of that reverse exchange so it is a little delayed and you can get entitlements and permitting and architecture well under way.  Those are things that usually take precious time from an exchange but add relatively little in $value to be absorbed in the exchange.

Second, remember you can't take title to the land until all the improvements you can make on it are done.

Third - accept my colleague request and let's work on it.

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