1031 Exchange and leverage question(s)

[Snehanshu Ashar]

Hi all, I am a newbee on this forum, hoping to get some guidance on my upcoming 1031 exchange.

Scenario:

I am selling my rental property with a 300,000 mortgage, and expecting to sell it in the range of 1,000,000, i.e. 30% LTV.

I am planning to reinvest in with 1031 exchange and have a bunch of questions on that. This post is about leverage.

I read mentions of some 200% rule in identifying replacement properties, which kind of implies I can identify properties up to $2,000,000.

So, my question is: Can I increase the leverage (LTV ratio) in a 1031 exchange?

i.e. In my scenario, can I use the $700,000 cash from the proceeds as a 20% downpayment to buy replacement properties worth $3,500,000?

If 200% rule limits this, then can I buy replacement properties worth $2,000,000, with a mortgage of $1,600,000 i.e. 80% LTV ratio?

Or is it the case that I have to maintain the exact LTV ratio? i.e. buy with $700K cash and 390K mortgage?

[Wayne Brooks]

@Snehanshu Ashar No, the 200% rule is something different, having to do with identifying multiple “possible” replacement properties.  You can leverage as high as your borrowing power will allow.

@Dave Foster does this every day, and could professionally guide you through the process.