Inherited commercial property, want to do a 1031 exchange, help!

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Inherited commercial property, want to do a 1031 exchange, help!

Sam Hecht
Real Estate Broker · Montreal, QC · Member since 2021 · 30 posts · 9 votes

Hi everyone,

I recently inherited a commercial property in Connersville, Indiana. It was bought in 1980 for 1.1mil, and is currently having moderate/large scale renovations done to it (new roof etc.). A triple net lease was signed (a grocery store rented it). The NOI is pretty low, and the cash flow is not where I think it can be. I want to upgrade.

I am really interested in doing a 1031 exchange to upgrade to an apartment building, but don't know where to start. I am a dual American and Canadian citizen, so anything I'd do would be from a distance. 

Anyone who has any advice on where to start, knows any commercial agents in Indiana, or has done a 1031 exchange, I really would love to connect and chat. 

Note: this would also be my first investment myself, but I have a fairly deep understanding of real estate investing (I completed the curriculum in Quebec, Canada to be an agent and write my exam to be certified in a month). I also have savings earmarked for a down payment, so I really want to get the ball rolling as a 1031 is something I think is attainable and lucrative. Any info and feedback is welcome. 

Thanks everyone :)

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Sam Hecht, Your first stop ought to be with the executor of the estate you inherited the property from and your accountant.  When you say recently, it is very possible that there is very little tax hit to you if you sell the property.  And a 1031 isn't needed.

    When you inherit property you are given a "step up"" in basis.  So you inherit it as if you paid market value for it.  So there is no perceived profit and not tax.  

    If you inherited this in the few months there may be no additional profit to worry about.  If you inherited it 2 years ago then you would have tax from the appreciation and depreciation of the last two years only.

    So start there.  And then decide what sector of real estate you want to go into.  Because the 1031 exchange can work moving into any type of real estate you would want.

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    Always begin with the end in mind! @Dave Foster is giving you the property guidance here. That's quite an inheritance you have here but you absolutely need to get in touch with your Estate Attorney as well as your CPA and 1031 Intermediary to get all the facts together before proceeding. 

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