Buy and hold turns to flip 1031??

Question

Hey BP!

I bought a 3 family march 2019 and have been rehabbing since, vacant since day 1.

My plan was to BRRRR it and keep it forever. Now I’m nearing the end of the project my agent suggested I sell them as condos, which I’m now going to do.

Can I 1031 this into something else? I know if it was a fix and flip 1031 doesn’t apply but I didnt decide to sell it until the end of the project.

Thanks for any info!!

Tom Manna · Answer

@Dave Foster very good to know. Of course finding something is the hard part. I dont want to buy something just to buy it and avoid the tax. I dont think that would make sense.

I’m fortunate enough that my condos are very hot already and they haven’t been listed. I should be able to get them closed right around the same time.

I really appreciate you taking the time to answer my questions with such detail

Dave Foster · Answer

@Tom Manna, The type of real estate doesn't matter as long as it is going to be for investment and your intent is to hold. So you could go from condos to commercial or MF, or SFR , vacation rental or anything. Many folks will put a fractional commercial product on their 45 day list just in case they can't find something.

You may want to try to schedule those sales so they all happen closely so the time frames as tight. Then you might very well be able to combine two or all of the exchanges into one replacement purchase. That would really expand your purchase options.\

I put in a colleague request with you so I can get some more documents in your hands that may help.

Tom Manna · Answer

@Dave Foster I was hoping you would be the one to answer my question. I hired an agent to rent it out. She came to the property a month ago and told me I would be crazy not to sell them as condos instead. Explaining how easy it would be and what I could get for them I would be insane not to sell them.

Now I need to find my long term investment. Does it have to be multi families? Or can I do commercial if something doesn’t come up?

Dave Foster · Answer

It's all about your intent @Tom Manna. From your description it sounds like your intent was to hold that property for productive investment use and at the last minute something compelling has caused you to change your mind. That would qualify for 1031 treatment as long as you can demonstrate that intent adequately if ever questioned.

There is no statutory holding period. It is only what your intent was and how you can demonstrate that. The length of time held is only test. Your standard business practice, the substance of communications with your professionals, and certainly any financial documentation you can bring to bear on what made you change your mind - these all go to demonstrate your intent.

So it sounds like this is a fortunate accident for you. That's awesome! Just remember that what is an accident when it happens once starts to look like something less accidental when it happens 4 or 5 times a year :)

Buy and hold turns to flip 1031??

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