Sell SFR to current tenants &1031 into multi-family w/o realtor??

5 Replies

I have been wanting to scale up my RE portfolio by selling my out of state single family property to my current long term tenants and doing a 1031 exchange into a multi family also out of state. I intend to pass the savings of not using a realtor and not needing to do any rehab, on to them. I will have the multi-family selling realtor help facilitate the 1031 exchange. This whole process seems within my scope of abilities at this point in my RE investing career but I am a little unclear on how to time everything. If the house sells before i identify a property, is it then too late to do a 1031 when i do find the property I want? Or if I do find what I want, tie it up with earnest money, and the SFR sale falls through, then what? I'm also still trying to find what markets I want to invest in. I'm looking at Akron OH., Albuquerque N.M., and the Boise area. Thoughts?

I think if I remember correctly it was going to cost about an extra 800 to 1000 for the 1031 exchange. And you have 45 days from when you close on the property you are selling to declare a new property. Then 180 days to close on the new property. The 180 days starts from when you sell the first property. I'm no expert just what I remember from one I was going to do last year. Good luck!  

If I were you, I'd do a lot of deal analysis in the target markets (I have a realtor in Boise, if you want me to share) and then be ready to move quickly on the sale of your existing investment and purchase of the new one. It sounds like you don't have specific properties lined up so I'd be careful about not exceeding the 1031 exchange timing requirements (180 days total timeline see https://www.irs.gov/pub/irs-news/fs-08-18.pdf).

I lucked out by selling and buying within a few weeks of each other, but I delayed the close of my sale property to make sure I didn't get crunched for time in the purchase of the new property. This was within the same state, so it was easier. I'd give yourself more time given that you are still researching properties out of state.

@Josh Splawn , Yes, the timing is going to be critical.  The 1031 starts with the closing of the sale of your old property.  From that day you have 45 days to identify your potential replacements.  You have a total of 180 days to close.  So it is not uncommon at all to begin a 1031 and not have your new property under contract.  However, once the 45 days has passed . you cannot change the list and only properties on the list will count for the 1031.

You can go into contract for your new property at any time.  But you cannot close on it until after your sale closes.  So if you put a contract on a property and put earnest money down you want to be sure that either the1031 sale will go through or that you can buy that property anyway.  Using contingencies in your contracts can help greatly.

Last and biggest caveat here.  You must use an unrelated 3rd party to handle the 1031.  And the intermediary must be in place prior to the sale.  So in your scenario the buying realtor cannot be your QI.  They may be able to recommend a QI to you.  But since you don't even have a target market identified and may sell your old property before you find your new property this probably isn't going to be advisable.  

There's plenty of QI's like us running around out there.  

@Josh Splawn it looks like some good advice above, but here are a few other items for consideration.

1) Talk to title companies in your target (buying) market.  Here in Boise, they handle most of the 1031 exchanges and are very knowledgeable on the process

2) Have your buying property lined up first.  Since your buyer is also your tenant, I assume you can work with them on the official closing date.  Strike the deal with them as to price and terms but make sure they know that closing occurs only AFTER you have a property lined up elsewhere.  One of the brokers I work with here locally has a buyer who is scrambling right now to even find deals that fit his requirements. The clock is ticking on his 1031.