Bulk sale rentals into a 1031 commercial purchase?

Question

Okay, I am feeling completely overwhelmed/uneducated in this new space I want to venture into. Partially due to the immense amount of research I’ve done without actually speaking with someone who has experience in this area and partially due to the possibility of selling with month-to-month tenants currently in place. (I love my tenants and this feels like a betrayal of sorts)

I have 8 doors that I originally planned to 1031 into 16+. However, after researching and years of managing I am strongly considering exchanging into a commercial/storage space. Is there a place to find investors who are actively looking to purchase multiple rental properties/portfolio? Where do I go for something like this?

Part 2: I feel I haven’t gotten a clear answer on the next question: Does exchanging multi family investment properties for a commercial storage unit purchase qualify as “like-kind”? If so, I would really appreciate a referral for an appropriate lender for this type of transaction.

This will be my first experience on this side of the real estate coin…unknown territory 🤩.

I love the challenge and learning new things and would ultimately love some guidance/advice from those who’ve done this before.Thank you in advance,

-Casey

Casey Reel · Answer

Thank you Dave! This information is very helpful. I knew I would run into tricky timelines with the exchange process, your explanation helps me realize that it will have to be very organized and methodical with a lot of moving parts. Challenge accepted! I am very grateful that you took the time to explain.

Dave Foster · Answer

@Casey Reel, any type of investment of any number anywhere in the US (if selling US property) for any other type, number, and location of investment real estate.

The key is that you must purchase at least as much as your aggregate net sales.  And you must use all of your aggregate proceeds from the sales in your purchase or purchases if you want to defer all tax.

If you are doing a consolidation exchange (selling several to purchase a larger property) then you'll need to try to cluster those sales as closely as you can so that your new property can be named on each 45 day list and you can close on it by day 180 of the first sale (the exchange that will expire first).

They're a little trickier.  But consolidation exchanges can be a real help when wanting to change classes of real estate and simplify effort and management.

Jake Andronico · Answer

@Casey Reel

Congrats!!

We do see portfolio sales just over the hill here in Reno, NV. But, the catch is buyers will almost always want a discount for "buying in bulk".

Selling individually will almost always net you more proceeds, but as Dave Foster said it will make the 1031 exchange significantly more tricky.

We're a brokerage in Reno, NV and know a lot of people in Sac, so if you do end up selling as a portfolio please send us the addresses! Hopefully we can help find someone if you decide to go down that route.

Whatever you decide, best of luck to you!!

Casey Reel · Answer

Thank you so much for this information. I will keep your information and reach out shortly. I expected their would be a bulk-sales discount and am running the numbers to see if it makes sense for ease of the 1031 process. I truly appreciate all of the information each of you have provided. 🙏

Noah Laker · Answer

Hey Casey, I'm a real estate broker and investor, and I manage 100+ rental properties - mostly STR/MTR and some LTR.

One of our specialties is 1031 exchange, I partner with IPX1031 as our qualified intermediary.

Firstly, YES any investment property can be considered "like kind." This includes multifamily -> commercial or vice versa.

Secondly, your best bet is to sell your portfolio as a package deal in order to simply the transaction and to capture the full benefit of a 1031 exchange. Otherwise things may get hairy if you are trying to sell each property individually, escrows will begin and end at different times and you'll end up in a crunch.

Recommend putting the properties together in a package and selling to a sophisticated investor. It will require a bit more work up front but well worth the payoff.

Storage units have done very well the last few years but other commercial inventory is struggling. Definitely wanna do a deep dive into your long term goals and market stats and make sure your "upleg" is the right choice.

Joe Vesey · Answer

Selling your investment property rentals and exchanging into commercial storage (as long as it is held for investment or used in your trade/business) works fine for a 1031 exchange.

Bulk sale rentals into a 1031 commercial purchase?

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