Selling SFHs to buy an apartment building

Real Estate Investor · Beaufort, SC · Member since 2014 · 29 posts · 7 votes

I have 6 SFH which are all rentals in Florida. I am moving to Texas in two years and would like to purchase a small apartment building 20-30 Units. What is the best way to sell all properties and pay the least amount of tax? If its even possible to 1031 into commercial, from a SFH rental, I wouldn't be able to sell all and find an apartment within allotted time (90 days I believe). Also is it possible to cash out refinance all homes and wrap them all into one mortgage?? Anyone know a lender in Florida that I could talk to about that?

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Steve S., Lots of moving parts to your scenario. Here's some initial pieces to the puzzle.

1. Any kind of investment real estate can be sold and exchanged for any other type if investment real estate. So a move from SFH to apt. is fine.

2. You actually have 180 days from the date of your sale to complete your purchase so here's some possible scenarios.

a. sell them all as one portfolio - so one exchange and into your apt.

b. Sell them one by one but all within a 180 day window so you can close on the purchase in the allotted times.

c. Sell or purchase with contingencies that require the buyer/seller to cooperate with your search for a suitable replacement or to wait for your sales before scheduling closing.

d. Use a reverse exchange where the 1031 intermediary purchases the new property and holds it for you in a special entity called the Exchange accommodating title holder. This is held until you close the sale of your old properties (but this too has a 180 day window).

You've got some time to plan so there are several ways to make this work.

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Steve S., Lots of moving parts to your scenario. Here's some initial pieces to the puzzle.
1. Any kind of investment real estate can be sold and exchanged for any other type if investment real estate. So a move from SFH to apt. is fine.
2. You actually have 180 days from the date of your sale to complete your purchase so here's some possible scenarios.
a. sell them all as one portfolio - so one exchange and into your apt.
b. Sell them one by one but all within a 180 day window so you can close on the purchase in the allotted times.
c. Sell or purchase with contingencies that require the buyer/seller to cooperate with your search for a suitable replacement or to wait for your sales before scheduling closing.
d. Use a reverse exchange where the 1031 intermediary purchases the new property and holds it for you in a special entity called the Exchange accommodating title holder. This is held until you close the sale of your old properties (but this too has a 180 day window).
You've got some time to plan so there are several ways to make this work.
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Account Closed
Earth · Member since 2017 · 297 posts · 187 votes
8y
In today’s hot seller market, most likely, part ( c )and part (d ) would not work. Very hard to find such buyer/seller willing to wait for you, at least not me. If you sell it using part (a), one portfolio, most likely, it will not be at top dollars. Most buyers who buy a portfolio of multiple SFR expect a discount on it. If you sell it one by one using part (b), most likely, you can sell each of them at top dollars, but very difficult to sell all 6 SFR in 180 days around the same time, then not much time to look for a desire apartment building you want within 180 days. If I were you, I would forget about the 1031 exchange, sell it one by one at top dollars, pay the taxes, so my time to look for an apartment building is not limited.
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
8y
In an ideal world all the SFH 's would sell in 1 week , and when you arrive in Texas , there would be someone at the airport waving a sign " Apt for sale 20 units "
For all that to fall together will be real difficult
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James Kojo
Rental Property Investor · Scottsdale, AZ · Member since 2016 · 184 posts · 223 votes
8y
@Steve S. I'm not so pessimistic.
From what I hear, much of Florida is a seller's market. The real problem is that so is Texas. :)
I 1031'd properties from Northern CA (hot) to Austin (slightly less hot.)
I think @Dave Foster's scenario (a) is a good one. The market is hot enough, that you probably won't have to provide a huge discount on your portfolio.
An alternative is to vacate all of the units, and try to sell them to end-users (depending where they are in the lease cycle.) Check out your local days-on-market statistics, or talk to a good Realtor.
Regardless of what strategy you take for the disposition, I would actually recommend you identify the replacement (20 unit apartment) property first. If your experience is anything like mine, that part of the transaction will actually be the long-pole. Also, It's not uncommon for commercial properties to have a 90 day closing period, so if you can dispose your SFR's in 90 days, you'll be good. If you have enough cash, you can actually close the apartment first, then close SFR's. I did that on one transaction.
Just make sure you have a stud/stud-ette as your 1031 QI. I haven't actually worked with Dave, but he's adding a ton of value here on BP, so he's probably worth a phone-call.
Good luck and let us know how it goes!
James
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Mark Allen
Real Estate Investor/Broker · Irving, TX · Member since 2015 · 520 posts · 263 votes
8y
We broker portfolios across the country for investors who want to 1031 into apartment complexes. You could also cash out refi with a variety of lending institutions.
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Jim Cummings
Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
8y
In a 1031 Exchange you have 180 Days to Close the New buy side of the deal. But the time crunch come by virtue of the 1031 requirement to IDENTIFY the new property(s) within 45 Days, and then you have 180 Days to Close.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Jim Cummings, One small correction. The total exchange period is 180 days to take title to the new property. You do have to identify your potential replacements by the end of day 45 and after that day the list cannot be changed. But you only have 135 days after day 45 to close. the 180 includes all.
You're absolutely right about the need for laser focus in that first 45 days. All that is required is written notice of your potentials but we strongly encourage that you have your new property actually under contract during that time to mitigate some of that risk.
It's even perfectly fine to have the new property under contract before the old property closes. You simply cannot take title to the new property before the old property closes.
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Jim Cummings
Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
8y
@Dave Foster. Thanks for the correction. Wasn't exactly sure of the order of day. I get properties under Contract, and then Identify. I've never had a problem getting closed on SFR - but Multi-family (Apartments) are different animals.
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Kurt Traynor
Investor · Moseley, VA · Member since 2015 · 145 posts · 60 votes
8y
Originally posted by @Steve S.:
I have 6 SFH which are all rentals in Florida. I am moving to Texas in two years and would like to purchase a small apartment building 20-30 Units. What is the best way to sell all properties and pay the least amount of tax? If its even possible to 1031 into commercial, from a SFH rental, I wouldn't be able to sell all and find an apartment within allotted time (90 days I believe). Also is it possible to cash out refinance all homes and wrap them all into one mortgage?? Anyone know a lender in Florida that I could talk to about that?
Steve, if you choose to sell instead of cash out Refi can you post info on the portfolio? Location and specs. TIa
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Luke Grogan
Investor · Cocoa Beach, FL · Member since 2015 · 132 posts · 59 votes
8y
This is very similar situation that i worked with six SFH in FL. I wanted to stay in FL so I found the deal I wanted, and then shopped a cash out refi (I owned all six free and clear).

I can give you a couple names that actually gave me a real shot to do this, otherwise, I was underwhelmed by what I could get as cash out - think 40-50% of market, or in one case, 50% of their bulk sale value. Then they wanted to finance the purchase at 70% LTV. In the end, I couldn’t find a MF that met my cash flow requirements and that I could purchase with the cash out terms.

The rate wasn’t great either, but I went ahead with the cash out and put some of my own cash to work and ave funded flips to people o have really good references on and I partner on flips that make sense. Still looking for a MF, but for now, my money is tied up in SFH flips and I buy other rentals when the price is right. Eventually I’ll sell as a package. I can give you two names of brokers that are getting good prices on packages of SFH, but depends on where yours are.

Originally posted by @Steve S.:

I have 6 SFH which are all rentals in Florida. I am moving to Texas in two years and would like to purchase a small apartment building 20-30 Units. What is the best way to sell all properties and pay the least amount of tax? If its even possible to 1031 into commercial, from a SFH rental, I wouldn't be able to sell all and find an apartment within allotted time (90 days I believe). Also is it possible to cash out refinance all homes and wrap them all into one mortgage?? Anyone know a lender in Florida that I could talk to about that?
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