Can I sell my property to myself for a 1031 exchange?

Question

I’m buying two conjoined condo units that were converted into one unit. I plan to renovate and split them apart. Once they are two separate units then I would like to sell an existing rental that I have and buy one of the units and begin using that as my replacement rental property? My first question is if this is legal & allowed? My second question is if it’s not then what about if I buy the new units and put the title in my minor daughters name, then would it be legal because then I wouldn’t be selling to myself?

Bill Exeter · Answer

Hi @Katrina Cabral,

The proposed structure will not qualify.  You cannot exchange with yourself and buying from a related party will not work in most cases (there are two exceptions, but they would not apply here).

You could do a Reverse Improvement 1031 Exchange. You could structure a Reverse Improvement 1031 Exchange where your Qualified Intermediary acquires and holds or "parks" legal title to the replacement property and then you have the 180 calendar days to (1) complete any improvements that you wish to make and (2) sell and close on the sale of your existing relinquished property.

Reverse 1031 Exchanges are more complicated and there are more costs, but it can accomplished what you are looking to do.  They are also a great way to deal with difficult markets like we have today.

Alex Olson · Answer

I would recommend finding a local good agent that is motivated to help to get it sold quickly. Then make sure you use Dave Foster or Bill E. to keep your QI in tact. I would invest in a cash flowing market that has appreciation. The Midwest and sun belt seems to be a good fit. Of course I am partial to KC, but happy to help anyway I can.

Dave Foster · Answer

@Katrina Cabral, you can't 1031 into property you already own.  But, if you have enough runway on your purchase you could sell your 1031 property now and use the proceeds to purchase the property now.  And then do your restructure subdivision and renovation.  Since they are after the fact they  aren't going to jam up your 1031.  That would also free up the other money you were going to use to buy the property so you can use it in the renovation.

I don't think you'd get away with a minor daughter either because she is on your tax return.  And I don't know if it's even legal for a minor to own real estate in CA??

Bill B. · Answer

GJ and GL. Check em all. I think there is/was a website that offered to submit them all for you but it’s not much work.

I know Opendoor is getting desperate. I have gotten 6 emails this year for one property, each one almost 10k higher than the last. It’s a property we were only 5-10k apart a year ago for $80k less than their current offer. Be careful. At least last year they were taking off 6% for a realtors fee and then another negative 5% “market adjustment” for Vegas. That part pissed me off. We were one of the hottest markets in the country and they wanted to subtract 5% because of our market. That was part of the reason they didn’t get my property a year ago for $80k less. A greedy little $10k fee/profit center/whatever you want to call it.

Let us know how it turns out.

Katrina Cabral · Answer

@Bill Brandt Brilliant! Thank you!! And the good news is I already have an offer from Opendoor. Thank you! I’m on it. Wish me luck.

Dave Foster · Answer

@Katrina Cabral, put it out on the marketplace here at BP.  There's plenty of investors looking for inventory.  And you'll be well served with an aggressive local realtor in GA.  I'll send you a pm as well. If ever there was a great time for a quick profitable sale to accommodate a 1031 and purchase- this is it :).

Katrina Cabral · Answer

@Dave Foster good idea as well. It’s a great property and going up in value every month it seems. It’s in Rex, nice neighborhood. Rockcreek community in case you’re familiar with the neighborhood. I have a great tenant, school teacher, pays on time, never has maintenance issues. Lease expires in August. The place has a new roof that’s about three years old, newer furnace & AC that are about 5 years old. Exterior paint done about 2 years ago. All new light fixtures, plumbing fixtures, new floors put in less than a year ago. Only negative is the front yard landscaping needs some attention/pine straw mulch. I have an offer from Opendoor for $225k. Interested?

Bill B. · Answer

Get a backup/lowball offe from Zillow/Opendoor/offerpad. They can close extremely quick and can serve as your emergency plan or even plan a if their offer is high enough.

Katrina Cabral · Answer

Thank you gentlemen for your replies. Sounds like I need to do some scrambling. I’m already in escrow on a condo in Hawaii. It’s expected to close in June. I would love to sell my SFR in Georgia and do a 1031 exchange. Can you recommend anyone that could help me execute this properly? I’m currently living in California but planning to move to Hawaii to do the renovation.

Can I sell my property to myself for a 1031 exchange?

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