1031 of single family homes to acquire multifamily?

6 Replies

So here's my issue: I have not done a 1031, but we have buy and hold property (single family) that we would like to sell, thanks to solid appreciation, a bit down the line. The goal would be to use those proceeds to buy a multifamily, hopefully something in the range of a 10 unit building (We'd be financing the deal, but these sales would allow us to put 25 to 30% down without a problem). 

Now, I know that 1031 is for a "like kind" exchange. Would I run into trouble because a single family is in a different category from a multifamily of that size, such that it would not count towards a 1031? Am I required to do another single family purchase, for 1031 purposes? 

Also, if I were selling two buy and hold houses to fund this one acquisition, is that an issue? Since the proceeds of each property, from sale, are both going into acquiring the same property? Obviously, I would list and hopefully sell both houses around the same time, and in my market (LA County), both would sell pretty quickly. But would love to defer those taxes! Any feedback appreciated. 

No trouble, real eatate for real estate is like kind. A rental SFH is perfectly OK to exchange for a multi unit building.

@Shiva Bhaskar , Have no fear.  Like kind is defined as property that you hold with the intent of productive use in business, trade or for investment.  So any kind of investment property can be sold and exchanged into any other type of investment property - SF to MF, residential to commercial etc etc.  And the number of properties is not an issue.  It is fine to sell one and buy several.  Or to sell several and exchange for one larger one.

The key is the valuations.  In order to fully defer all tax you must use all of the proceeds from the sale or sales.  And you must purchase at least as much as you sold.  So an exchange where you sell two properties and buy one larger one would be absolutely fine.  If you want to avoid all tax you would need to purchase at least as much as the aggregate of the two sales.  And you'd need to use all of the cash from both sales in the purchase.

Great Plan!

I have done 7 1031 exchanges for apartment complexes and traded in single family in California for Apartment complexes and now have 122 front doors.  You can too!!  i told about my story on Podcast 238.  Listen to that podcast right away.  I spoke about the power of the 1031 exchange and trading in single family for apartment complexes.

Swanny

Originally posted by @Michael Swan :

I have done 7 1031 exchanges for apartment complexes and traded in single family in California for Apartment complexes and now have 122 front doors.  You can too!!  i told about my story on Podcast 238.  Listen to that podcast right away.  I spoke about the power of the 1031 exchange and trading in single family for apartment complexes.

Swanny

 Awesome, I'll have to check it out! That's a very inspiring story, looking forward to listening and learning how you did it. 

Originally posted by @Dave Foster :

@Shiva Bhaskar, Have no fear.  Like kind is defined as property that you hold with the intent of productive use in business, trade or for investment.  So any kind of investment property can be sold and exchanged into any other type of investment property - SF to MF, residential to commercial etc etc.  And the number of properties is not an issue.  It is fine to sell one and buy several.  Or to sell several and exchange for one larger one.

The key is the valuations.  In order to fully defer all tax you must use all of the proceeds from the sale or sales.  And you must purchase at least as much as you sold.  So an exchange where you sell two properties and buy one larger one would be absolutely fine.  If you want to avoid all tax you would need to purchase at least as much as the aggregate of the two sales.  And you'd need to use all of the cash from both sales in the purchase.

Great Plan!

 Thanks Dave, that was super helpful. 

Originally posted by @Ned Carey :

No trouble, real eatate for real estate is like kind. A rental SFH is perfectly OK to exchange for a multi unit building.

 Appreciate it Ned. Thank you.