1031 vs leveraging equity question.

[Kelvin J.]

Mornin’ BP!

I have a $150k piece of land (w/ well if that matters) that I intended to build my primary residence on. I own the land free and clear but I now intend to use it to help get into a MF investment property.

One option is sell it, reinvest the cash. But boooooo taxes.

The best option seems to be a 1031 exchange but I wanted to get clarification on a 3rd option.

When I originally intended to build my home there; the plan with the lender was for me to pay off the land(done) and then use the land as collateral down payment for the home construction loan. Could I also do this for an investment property? ie use the land as collateral down payment for… say a 4-plex?

In my eyes, the pro seems to be that I get to keep my plot of land. The cons are it’s not generating any cash flow and it is accruing taxes and utilities (heated well house).

Just looking for your experience and thoughts on doing a 1031 vs collateral style financing. Sorry if my terminology is garbage. Still learning.

[Will Fraser]

Hi @Kelvin J.!  You shouldn't have any issue using the land as collateral on whatever type of property purchase you want so long as you use the right vehicle.  Banks are unlikely to use the land in lieu of cash as a down payment BUT you should be able to get some sort of equity loan on the land and use that cash as the down payment.

Jumping to the 1031 exchange plan . . . considering your intent was to owner occupy the land you'll probably want to do something to decisively demonstrate that your plan changed to using it as an investment IF you want to use an exchange.  Ultimately defer to a 1031 pro like @Dave Foster here, and this option could be a goodie!