1031 Exchange Question

6 Replies

I understand the 1031 exchange basics.  I am hoping to use it for a rental I am selling to purchase another two properties.  Am I able to exchange with two different properties or does it have to be to one?  Also, how long do I have to identify a property(s) when using the 1031?

You can exchange to two properties. Have 45 days from the closing of the property you sold to identify the replacement properties. Have to close within 180 days from closing of property sold. Just have to make sure you replace at least as much real estate as you sold. (There are some other special variations you can do, but doubt they’re necessary for you) Plenty of good QIs on here that can assist.

@Jimmy Domer , when you're contemplating a diversification exchange (going from 1 to multiple properties) you are creating several opportunities for yourself.  Since the way to avoid all tax is to purchase at least as much as your net sale the key is the aggregate values rather than the individual.  So one opportunity you have is to sell your asset and replace it with the same class and type but two properties (or more) and use your net proceeds as down payments.  You can also perform a market hedge and start to separate your cash and leverage.  

Much like "ratholing" in poker where the player takes his chips off the table and ends up only playing with the banks money.  In a 1031 this involves purchasing one property for cash or minimal leverage and purchasing the other property for maximum leverage.  You can allocate your proceeds in any manner you want as long as you use them all.  This allows you to own a property with very little market down turn risk other than vacancy and loss of paper value.  The other property purchased with leverage still allows you to participate in debt ratcheting and maximize your roi through debt.

From the date of your sale you have 45 calendar days to identify your new potential replacements.  Because there is no flex in this period after day 45 we always highly recommend that you actually get your new properties under contract during the 45 day period to mitigate risk.  In fact, the only statutory order for a 1031 is that you must close your sale before you close your purchase.  So if you want to go into contract for your purchases while your old property is still under contract you can sure do that.

@Lauren Speidel thank you for the extra detail.  @Dave Foster thank you for the advice and suggestions, good stuff.  I plan on selling and using 1031 for two-three down payments on other properties.  I have a few in the works currently, so timing might be just right with the 45 days.