Can anyone explain to me how I can use private money to close a 1031 exchange deal on a big multi?

2 Replies

Hello,

I am selling my 3 unit building for 450k. I cannot get a bank loan.

To my understanding (I trust someone will correct me if I am wrong) if I want to buy a bigger multi it needs to have a purchase price of 450k or more , RIGHT?

This sale will net me about 100k which I can use as a down payment.

This is where I start to get confused....How could I borrow the other 350k needed to purchase the building? And what kind of terms would be typical?

My plan is to purchase an off market deal for below market value. Hold the property for 2 years then sell it and cash out my investor....IS THIS SOMETHING THAT ONLY HAPPENS IN SEMINARS?

all responses appericated, thanks.

Hi Jack,

Yes, you are correct.  If you want to defer all of your taxable gain, you must acquire one or more replacement properties that have a total purchase price that is equal to or greater than your net sale price of your relinquished property.

Your net sale price will be your gross sale price of $450,000 less your routine selling expenses such as your broker's commission, title insurance costs, escrow or attorney closing fees, recording fees, 1031 Exchange fee, etc. You would not deduct operating expenses such as property taxes, prorated rents, security deposits paid to the buyer, HOA fees, etc., and would you not deduct any loan pay off amounts and/or related pay off expenses/costs.

You indicate that you will net about $100,000.  What was the difference?  Was it an outstanding loan balance paid off?  Was it an investor paid off, and if so, was it equity or debt? 

You must reinvest all of your net equity or cash proceeds, so the $100,000 must be reinvested.  The difference between the total purchase  price and the equity that you reinvest will be the right amount of new debt/equity needed.  The debt could be traditional/convention financing or it would be private/hard money financing.  The source does not matter for 1031 Exchange purposes.  I will let others comment on the terms that you can expect from the various sources.

Bill,

Thank you very much for your reply. This information has been very helpful.

I used conventional financing when I bought this property and I have a payoff of 284k.

Thank you for explaining exactly what "net sales price" is.

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