1031 Exchange Question

[Steve Oswald]

Hello BP,

I'm considering selling one of my properties in a 1031 exchange. What I'm looking to possibly do is on the sale keep some money in the property I am selling to retain say 5% ownership likely structured in an LLC. But the rest of the proceeds would go toward another purchase. Does anyone have experience in this or does anyone know if this is allowed? I could see it going either way.

Thanks,

Steve 

[Dave Foster]

@Steve Oswald, It sounds like you're selling to a large player who wants to manage or value add your property - maybe a syndication of some sort. It would be perfectly fine for you to sell 95% of the property deeded to that buyer and retain 5% as a minority interest. You would do a 1031 on the proceeds and sales price of the 95%. And my guess is that you and the entity would have you then contribute the 5% you retain into an entity like an LLC in exchange for a 5% membership interest in the LLC. But that doesn't have anything to do with the 1031.

For the 1031 you are selling a property that happens to be 95% of a larger property.  And you are 1031ing the sale into new property.  No problem.