1031 Exchange Question

4 Replies

My question is in regard to the 1031 exchange. I'll have 2 properties in this theory that i'll lay out. I am new to REI, so i'm not sure if this is even possible. If there's something i'm missing here please let me know, but i'm pretty sure i included all relevant information. Any and all comments or suggestions are appreciated.

Property #1:

•This was my primary residence for 5 years. It is now a rental

•cash-flowing $325/month

•it has 100k+ in equity at the moment and will have general not forced appreciation over the next 3 years, i am not putting anything else into it

•the mortgage is being aggressively paid down by tenant because it’s a 15yr mortgage

• i CAN utilize Homeowner’s Sale Exemption if sold sometime in the next 3 years.

•looking at a 39% return if sold in 3 years, using a safe projected sale estimate.

Property #2:

•Strictly a rental

•cash-flowing $335/month

•conventional 30yr amortization

•will be putting 60k+ into it over the next few years, which will moderately increase cash-flow, but will dramatically increase the equity.

•looking at a 15% return if sold whenever the work is done, using a safe projected sale estimate.

So my question is, should i:

1) sell Property #1 in the next 3 years to take advantage of Homeowner’s Sale Exemption

2) keep both and either cash-out refi or HELOC both (once i have more equity in Property #2) to obtain more properties

3) sell both at the same time via 1031 exchange to upgrade to a more cash-flowing multi-unit

option 3 is my main question, is that even possible? can you sell 2 seperate investment properties via 1031 to upgrade to another (obviously more expensive) investment?

@Michael Lyons , yes you can sell two or more properties in a 1031 and combine them to purchase one larger property.  The keys are that the replacement property must meet the timelines of each sale.  And in total you must purchase at least as much as the total of your sales in order to defer all tax.

In your case right now you could both sell your primary and take that money tax free and combine it with the 1031 sale if you want of course.