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Updated over 5 years ago on . Most recent reply presented by

Account Closed
  • Contractor
  • San Diego, CA
221
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432
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1031 to lower priced possible?

Account Closed
  • Contractor
  • San Diego, CA
Posted

Hi BP, is it possible to 1031 exchange an sfr to another sfr of lower purchase price, yet include rehab costs within the 90 or so days (can't remember the time limits) to make it cost more? This may be a common question but I thought I'd ask BP directly.. I remember Alex (catchy last name but can't remember) from Vegas doing something similar to this idea with (HUD?) another class of purchase.. can any one shed some light?

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Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
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Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied

@Account Closed, Your 1031 can only be used for the purchase of investment real estate.  However, if the improvements can be made before you take title then your purchase price simply includes the already made improvements.  

1. Sometimes a seller can be talked into doing this and then adjusting the price up.

2. Sometimes a lease/option is a good vehicle to make it work depending on timing.

3. Or a form of a reverse exchange (the specific format depending on your specific scenario)

In all of these cases the key is that you do not take title to complete your 1031 until after the improvements are made.  In the first two the seller retains title but either completes the improvements themselves or allows you to do it while under lease.

In the case of the reverse exchange the Qualified intermediary takes title to the new property while it is improved.  Reverses are complicated and a bit more expensive.  But if your improvements are more than $30K - $50K they can become cost effective.

  • Dave Foster
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The 1031 Investor
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