1031 Exchange / House Hacking

7 Replies

I currently own and live in a single-family house that I paid $40k for. I am looking to "house hack" aka live-in rehab in a home I am currently in the works of obtaining through seller financing, since it is non-FHA compatible at this point. My plan is after closing on the new property, I would immediately move into it, making rehabs and getting it to FHA standards while I rent out the house I currently live in. While I am "house hacking" the new single-family, I would like to rent out the house I would be moving out of. Once the new house is up to FHA standards, I plan on refinancing to an FHA loan. After refinancing, I would like to remove the tenants from my old residence and make necessary repairs and improvements, and I believe a conservative sale price would be in the range of 50-55k. At this point I would like to take advantage of a 1031 exchange, and reinvest this into a multifamily property (2-4 unit).

How long do I have to rent out the old single-family before it is eligible for a 1031 exchange?

To my understanding, a single-family and multifamily (2-4 units) are fairly similar as far as traditional financing.  Is it possible to do a 1031 exchange from a single-family to a small multifamily?

If I am unable to utilize a 1031 to obtain a multifamily, is it possible to get an FHA loan on a multifamily, and owner-occupy one of the units? Therefore negating the 1031 benefits, meanwhile gaining the ability to put a down-payment on a multifamily.

Any thoughts or knowledge will be valued and appreciated, excited to join the biggerpockets community!

@Kory Quitter

1. There's no statutory holding period before the old house would qualify for 1031 treatment.  It's your intent to hold that is important.  Most folks feel comfortable at anything over a year so it ends up on two consecutive tax returns.  But the merits of each case are what qualifies it.

2. Yes, like kind for 1031 is any kind of investment real estate for any other kind of investment real estate.

3. Yes the last I checked anything 4 units or less was viable for an FHA owner occupied loan - any lenders out there can verify?

4. living in one unit of a MF does not negate the ability to 1031 into it.  you simply have to make sure that the investment portion of the new property is equal to or greater than the value of the investment property you sold.

Originally posted by @Dave Foster :

@Kory Quitter

1. There's no statutory holding period before the old house would qualify for 1031 treatment.  It's your intent to hold that is important.  Most folks feel comfortable at anything over a year so it ends up on two consecutive tax returns.  But the merits of each case are what qualifies it.

2. Yes, like kind for 1031 is any kind of investment real estate for any other kind of investment real estate.

3. Yes the last I checked anything 4 units or less was viable for an FHA owner occupied loan - any lenders out there can verify?

4. living in one unit of a MF does not negate the ability to 1031 into it.  you simply have to make sure that the investment portion of the new property is equal to or greater than the value of the investment property you sold.

Dave, If I Joint Venture 50/50 with a partner on a property within an LLC, and we keep it for a while, can we later 1031 exchange just as though it was owned by an individual? Are the mechanics the same?

@Mike S. , Yes, the mechanics are exactly the same. But the exchanger is not you and your partner it is the LLC. So the LLC would sell and buy using the 1031. You and your partner have to go together as the LLC once the property is in the LLC.

If you and your partner own as tenants in common then each of you could sell your 50% (or whatever it is) and do your own exchanges and separate that way.

Originally posted by @Dave Foster :

@Mike S., Yes, the mechanics are exactly the same. But the exchanger is not you and your partner it is the LLC. So the LLC would sell and buy using the 1031. You and your partner have to go together as the LLC once the property is in the LLC.

If you and your partner own as tenants in common then each of you could sell your 50% (or whatever it is) and do your own exchanges and separate that way.

 Very useful info Dave, thanks.

Hi @Kory Quitter and @Mike S.

It is your intent that counts here.  You must have the intent to hold for rental, investment or business use.  Properties that are held for sale such as rehab, flips, remodels, etc., with the intent to sell after the project is completed have the risk of being disqualified under an audit.  The ingredient is to rehab and then hold for rental property.  There is no required holding period in the code, regulations or rulings other than you be able to demonstrate that you did in fact have the intent to hold for rental, investment or business use. 

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