Tax Free Exhange with Free and Clear Property

Real Estate Agent · Redondo Beach, CA · Member since 2016 · 36 posts · 6 votes

I own a free and clear SFR and looking to use the equity to do a tax free exchange as a down payment into a multi-family. Any advice? Is this smart, pros and cons etc??

0 Reply

18 views

4 Replies

Jump to latestLatest

Sort by

Sean Morrisey
Residential Real Estate Broker · Aurora, IL · Member since 2017 · 96 posts · 45 votes
8y
Love it! Cash out refi is the way to go. I have found a couple of lenders that will perform a 75% LTV on non-owner occupied homes. If you find one that will go 80% or higher, would love to know.
0 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y
@Account Closed said, if the current rental is a good performing asset and can sustain it's performance with a debt load then you may want to do a cash out refi and use that as the down payment on the MF.
If it's either/or on the properties or if that SF would not be a great rental loaded with debt then a 1031 exchange is the path for you. Specifically designed to allow you to sell a highly appreciated or depreciated asset and use the proceeds to buy new investment property the 1031 allows you to defer all tax on gain and depreciation. The strategy of using a 1031 to buy bigger or more expensive units is called a diversification exchange and is a classical use of 1031.
One other consideration since you're dealing with a debt free property would be to sell and 1031 into the MF but put the minimum into the MF that you feel comfortable with to sustain performance and/or qualify. Then take the left over cash and purchase another property for cash or a fractional cash flowing instrument that qualifies for 1031 treatment. This lets you start to separate debt and cash to protect you in a downturn but also let's you continue to ratchet up your investing portfolio.
The 1031 Investor5140 Reviews
Website View Page
0 Reply
Account Closed
OP
Real Estate Agent · Redondo Beach, CA · Member since 2016 · 36 posts · 6 votes
8y
@Dave Foster thank you looks like I am considering the third option as I want to diversify my portfolio. However the property is a good performing asset so strongly thinking of just doing the first option and keep the asset and get into a MF. I have much to think about!
0 Reply
Jason Dillard
Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
8y
@Marc Carithers All your equity can be traded up into a bigger property. There are exchangors that specialize in finding sellers that would take your property as a down payment on theirs. It's work for me multiple times. Using all your equity to move up really helps the snow ball effect to building wealth. Your deed and cash to seller at close. Plus, no need to delay cash flows when it's a simutanious exchange. All cash could come from bank. If you add some cash, you could really jump up in property size.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.