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1031 Exchanges

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Aaron S.
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1031 Exchange into a larger partnership or co ownership

Aaron S.
Posted Dec 3 2018, 15:00

Hi, I'm new to BP but have been listening to the podcast and reading up quite a bit that past few years. I'm seeking advice and clarification on a potential 1031. The details are as follows: 

I bought and lived in a condo in SF when I was single. I now live in a different market and have been renting the unit out. I've owned it for about 15 years, therefore I have a lot of equity in it and it has appreciated like crazy. 

I'm considering doing a 1031 and buying a bigger multi family. I have a friend who has a large multi family investing company and does pretty big deals. He suggested I do a 1031 and go in on a large property with his company (as an investor).  In other words, getting into a bigger building than I could on my own. The other benefit is that I'd have an experienced, well regarded company in on the deal whereas otherwise I'd just be a no name, inexperienced investor. 

My understanding is that I can't do a 1031 from a personal ownership into an investment where I am only an investor/ partial owner, or if the new business is an LLC. Is that correct? Are there any ways around this?

A related question -- I know that some people say to identify a property you are exchanging into before you close on your current property. But in a hot market, the likelihood of a good deal staying on the market while I wait to close seems, well, unlikely. How is someone supposed to identify a property and secure it before you have the 1031 funds in escrow? Maybe I'm missing something. 

Excited to be on the forum and look forward to any help! 

I should note that the equity / potential capital gains are not insignificant: I have about 900K in equity on a property valued close to 1.2M. (Current cash flow is about $1,100/mo.)

Aaron

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