1031 exchange to multi family units

Salem, Oregon
Multi-Family and Apartment Investing
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1031 exchange to multi family units

Casey Kernan
Member since 2022 · 6 posts · 5 votes

Have two SFH in different states. Both are paid off and 1 is under property management. Considering selling both and consolidating into multi family unit vs commercial building. I Realize timing this and doing a 1031 exchange could be tricky but want to scale wealth. For those of you who have done this. Any advice? What worked for you?

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Alex Olson
Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
6mo

I have helped similar situations for investors often - two different states and multiple properties. Key is getting the closing dates almost exaclty the same to make it easy on your ID period. 

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  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    6mo

    @Casey Kernan

    1. Be realistic about the value of your two existing SFRs and be realistic about what MF you can buy in your chosen market. 

    In my experience this is the number one cause of 1031s breaking down. An investor contracts to sell existing properties and then can not find something to buy.

    By way of example, if you MF “buy criteria” is 8% cap and 10% year one cash on cash. And your market is really a 6% cap with 5% cash in cash year one returns, you won’t find anything to buy. 

    Be very clear on your buy expectations. They must be realistic and at market. 

    Same with your sale properties if true market value is 10% less than your desired piece those properties won’t sell and you will have wasted a lot of time trying to find something but never have the ability to actually close. 

    Further ideas:

    Start looking as soon as your houses go up for sale. Start making offers contingency on the sale. It’s likely none will be accepted but getting in the market will provide data. Once your houses are under contract, your offer position will become stronger. 

    I’ve done dozens of 1031s and I like to have the buy properties under contract before I close on the sale property - ie before the 45 day clock starts. 

    Get with a 1031 intermediary right away and let guide you thru the process. Don’t wait until 3 days before sale of the house. 

    Hope this helps. 

    Arn

    [email protected]650-575-6114
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  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    6mo

    I have helped similar situations for investors often - two different states and multiple properties. Key is getting the closing dates almost exaclty the same to make it easy on your ID period. 

    2Reply
  • Todd AndersonPro Member
    Real Estate Agent · Cape Coral, FL · Member since 2023 · 392 posts · 175 votes
    6mo

    @Casey Kernan,

    Congrats on being in the position to start to scale.

    I have worked with a number of investors that are in your position.  I would agree with Arn, start looking for your next property as soon as you puth the current ones on the market.  

    With many of the investors that I talk with they find the process much easier if they are looking at the new construction market. We have many investors that are looking to move out of a SFR into a duplex or quad. With a build to rent property this part becomes an easy process to just find the right area. The way I have recommended investors handle this is to work with a production builder that has th properties started, or many times even completed. I have found that there are many builders that will complete a property and fill with tenants before they sell. This allows for an easy closing and day one cash flow.

    I would suggest that you at least look into this strategy.  I have seen it work well. 

    [email protected]651-492-5652
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  • Joey BanasihanPro Member
    Investor · Boise, ID · Member since 2019 · 238 posts · 189 votes
    6mo

    Hey @Casey Kernan, sounds like folks have touched based on the 1031 nuances, which is important for sure. Something I would be thinking through is what are you actually trying to solve? Two paid-off SFHs is a pretty enviable spot. If it's more cash flow, there are ways to get there without selling. If it's simplification, commercial is a whole different animal than people expect. If it's equity growth, SFH in the right market often beats MF over a long hold.
    Not saying don't do it, just that "scale wealth" can go a few directions and they each point to different moves.

    What does your ideal setup look like five years out?

    [email protected]
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  • Pierre Guirguis
    Lender · Marlboro, NJ · Member since 2025 · 243 posts · 150 votes
    6mo

    A 1031 can help you scale, but I wouldn’t let the tax tail wag the investment dog. I’ve seen people rush into a deal just to meet the timeline and end up overpaying or taking on something more complicated than what they sold.

    If your goal is more consistent income and easier scaling, multifamily is usually the smoother transition compared to jumping straight into a commercial building. It’s generally more forgiving and less dependent on one or two tenants performing.

    The biggest thing is to start lining up deals before you sell. That 45 day window gets tight fast and you don’t want to be making a rushed decision under pressure.

    If you land the right deal, consolidating like this can really clean up your portfolio and improve cash flow. If you rush it, you can easily trade two solid properties for one headache.

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  • Masoud ArouniPro Member
    Investor · Pleasanton, CA · Member since 2026 · 119 posts · 52 votes
    6mo

    Hey @Casey Kernan

    Joey's question is the right one to answer first. But once you're clear on the destination, the underwriting piece is where paid-off SFR equity into multifamily gets interesting.

    Coming in with no debt to replace actually simplifies the 1031 math — your exchange amount is your full net proceeds. The question becomes what that equity buys you in cash-on-cash terms at today's multifamily cap rates vs what your two SFRs are currently generating unlevered.

    Two paid-off properties generating even modest rent are probably returning 6-8% unlevered on current value. A leveraged multifamily in most markets today needs to clear DSCR minimums around 1.25x just to get financed, which at current rates means your income assumptions have to be tight and realistic.

    Before the 1031 clock starts, worth modeling: what does the replacement property need to produce monthly to beat what you're already making — and what vacancy or rate stress breaks that math?
    That number tells you exactly what you're shopping for.

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6mo

    @Casey Kernan, we call this a consolidation exchange, and they might seem intimidating, but there are ways to make the process smoother, so you're not stressing about your time frames.

    Since you want to combine the sale of two properties, your time frame starts at the sale of the first property, but of course, you'll be shopping well ahead of that to locate what you want. You can even put the new property under contract before your relinquished properties are closed. You just can't take title to the new property before the old property is sold. You can use the longer due diligence and contract period for a commercial or MF property to your advantage. You could also try selling them as a portfolio. You just might not get as much as you would selling your properties individually.

    The biggest advantage you've got going for yourself is the ability to be flexible with your purchase. In order to defer all tax, you must purchase at least as much as your sales combined. But with your parameters, that could be anything from a property for cash, or use the sales as down payments on something really big. Plenty of options. And if you end up buying for cash, you will still have concentrated your equity. So when the next opportunity comes up, you can access that equity with a cash-out refi very easily.

    Remember, there's no penalty for not completing a 1031 exchange, so if you dont find a property you like, then dont submit any properties on your list and let your exchange die on day 46. You could just pay the tax like you normally would. A 1031 consolidation exchange is more perceived as a fear than an actuality. We're doing one right now for a client who is selling 13 SFHs and buying one MF. Your qualified intermediary will be your guide and walk you through the process as any other professional you work with for real estate sale and purchase.

    The 1031 Investor5137 Reviews
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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    5mo

    If the question is whether you can exchange 2 separate properties for 1 property - the answer is that yes, you can do this.

    Considering both properties being paid off - you don't have a mortgage interest deduction that others have which reduces taxable income. 
    If you get a new property with a mortgage, it will likely your chances of the property generating taxable income for you.

    Best of luck!

    [email protected]917-280-8544
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  • Ethan HaiglerBusiness Member
    Real Estate Agent · Charlotte, NC · Member since 2019 · 111 posts · 58 votes
    5mo

    @Casey Kernan I did this fairly recently- selling 2 properties in TN and redirecting into multifamily units in Ohio. I’d be more than happy to talk through the details on the phone this week if you’d like

    [email protected]704-607-2078
    3 Little Pigs Rental Management
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    Ethan Haigler Realty
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  • Ivan A Urquiza
    Member since 2023 · 19 posts · 9 votes
    5mo

    Currently trying to accomplish the same. Selling a SFR residence I have in Tallahassee, Fl to purchase a small multi-family in the Fort Myers, Fl. Would love to hear what you ultimately decided and how that worked out for you!

    Excellent feedback in this forum. I appreciate all the information and advice!

    0Reply
  • Jimmy LieuBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
    5mo
    Quote from @Casey Kernan:

    Have two SFH in different states. Both are paid off and 1 is under property management. Considering selling both and consolidating into multi family unit vs commercial building. I Realize timing this and doing a 1031 exchange could be tricky but want to scale wealth. For those of you who have done this. Any advice? What worked for you?

    Hey Casey, I’ve seen a lot of investors make that exact move once they realize a couple paid-off SFHs can create a lot more leverage when consolidated correctly. The biggest thing is getting very clear on your actual goal before jumping into a bigger asset. Multifamily tends to be easier to scale operationally since you have multiple units under one roof, while commercial can be amazing but usually comes with a steeper learning curve, more vacancy risk, and more dependence on tenant quality. A lot of people underestimate how different commercial underwriting and leasing can be compared to residential. What worked well for investors I know was identifying the replacement property first before listing the relinquished properties, building a strong CPA and qualified intermediary team early, and leaving some margin for timing issues because 1031 deadlines come fast. Also, don’t feel pressured to go “bigger” just for the sake of scaling. Sometimes a well-located 4-12 unit multifamily with stable tenants and room for rent growth outperforms a flashy commercial deal with higher complexity. Another thing I’d consider is whether you still want relatively passive ownership. Commercial can become much more active depending on the asset type. Since your properties are already paid off, you’re in a strong position because you can choose to prioritize either cash flow, appreciation, or ease of management instead of chasing yield out of necessity. I’d spend extra time stress testing vacancy, maintenance reserves, and financing assumptions before making the leap. A lot of people regret scaling too quickly into something they didn’t fully understand operationally.
    [email protected]614-300-7535
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  • Michael Swan
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    5mo

    That's what I did in Lake County Ohio, 1031 properties in San Diego for apartment complexes in Ohio in 2011-2012. Now I have a 57 unit in a beautiful area called Mentor, Ohio that we have repositioned with still lots of meat on the bone for a potential buyer like you. The address is 7559 Mentor Ave. in Mentor, Ohio. About $90,000 median level income there too. We are listing it in about 2 weeks and it is a pocket listing right now. The whisper price is about 5.9 Million. NOI t-12 about $430,000.00. I love talking shop!!

    I was able to retire from my teaching job at 55 yrs old, due to my RE. Told my story on BP Podcast 238 with Brandon Turner as the host. Kind of OG BP podcast back in 2017.

    Swanny (Michael Swan)

    BP Podcast 238 OG Guest 2017

    1Reply
  • Pierre Guirguis
    Lender · Marlboro, NJ · Member since 2025 · 243 posts · 150 votes
    5mo

    One thing worth flagging from the financing side - since both properties are paid off, your full net proceeds roll into the exchange, which is actually a cleaner position than most. But when you go to finance the replacement multifamily, lenders are still going to underwrite the deal on its own merits. DSCR minimums are typically around 1.20-1.25x at current rates, so the income on the replacement property needs to support the debt regardless of how much equity you bring in. Modeling the replacement property before the clock starts is important. You want to know exactly what rent roll you need to qualify before you're shopping under pressure. Happy to run numbers on any deal you're looking at if it helps narrow things down.

    1Reply
  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 907 votes
    5mo

    Yes, you can absolutely do a 1031 exchange where you sell two separate properties and roll into one replacement property. One thing worth thinking through is that since both of your current homes are paid off, you don't have any mortgage interest deduction working in your favor right now to bring down the taxable rental income. If you finance the replacement property with a new loan, that mortgage interest expense will likely reduce how much rental income shows up as taxable in the early years. The exact answer really depends on your facts, so worth running this by your own CPA before pulling the trigger.

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  • Phil Strauss
    Member since 2026 · 5 posts · 1 vote
    5mo

    When you say commercial, are you looking to actively manage the new one or something more passive like a DST? It's a big paradigm shift going from active management to passive. I know plenty of people who wanted the 1031 but didn't want to be landlords dealing with tenants, maintenance, etc. They rolled it into a partial ownership of a large apartment building.

    0Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    4mo

    Hey Casey! This is a great position to be in with two paid-off SFHs. A few thoughts from the tax and planning side that are worth layering into your decision. 

    On the 1031 side, you're right that timing two separate properties into one replacement can be tricky. Like others have said the good news is that you can sell both properties and use the combined proceeds in a single 1031 exchange as long as you're working with a qualified intermediary and following the identification and closing timelines carefully. 

    One thing a lot of people don't think about upfront is the depreciation and basis side of the new acquisition. When you 1031 into a larger asset, your carryover basis from both properties rolls into the new one, and any excess basis from additional cash you bring in gets its own depreciation schedule. Getting a cost segregation study done on the replacement property, whether it's multifamily or commercial, can be a really powerful way to accelerate depreciation in year one and create meaningful tax savings right out of the gate.

    Also one note to remember is that a 1031 exchange is in theory just a deferral of taxes until the replacement property is eventually sold. 

    Either way, looping in a CPA before you list either property is really important so the exchange is structured correctly from the start and you're not leaving any depreciation or tax planning opportunities on the table. Happy to connect!

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  • Fulton Abraham Sanchez
    CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes
    4mo

    @Casey Kernan, hi. Decide first whether your priority is scale, less management, or stronger cash flow. A 1031 can work when selling two properties into one replacement, but the 45-day identification and 180-day closing deadlines require careful coordination.

    Line up replacement options before listing, stress-test the numbers conservatively, and compare management intensity: small multifamily may still be hands-on, while commercial can be more passive but carries tenant and lease risk

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