Can you 1031 into a syndication?

19 Replies

I have sale proceeds from a flip that I would like to invest into a multifamily syndication - can I utilize a 1031 when doing this?

@Austin Works

Usually no. I have read that one syndicator does this however the investment needs to be $1mm+ since they need to restructure the whole deal. Of course, I would check with the syndicator you want to invest with and your CPA before doing anything.

@Austin Works If the syndication has been set up as a tenant in common, yes, it would work. Unfortunately many syndications are set up partnerships and in that case it would not qualify because you'd be buying shares or membership interests and not real property.

@Austin Works ignoring if the sale was 1031 applicable or not, it depends on the sponsor if they're willing to complicate their structure by incorporating TICS and incurring higher costs because of it. Usually it would have to be a good chunk of the . equity for it to be a conversation as the investor is also probably going to have to be a key principal on the loan too.

@Jordan Moorhead , this actually was intended to be rental. I purchased a four-plex about eight months ago, renovated it, and then had it appraised. Once I saw the amount of equity I have, I decided to sell instead of renting. 

Hi Austin. Yes, you can do this! You (the 1031 party) is not considered an "investor." But, you are considered a CO-OWNER with an undivided interest of ownership in the Apartment Building. This is also called a Tenant-in-Common structure (aka TIC). This is how you can participate. I'm speaking in Dallas at the Think Multifamily Fire Summit on this exact topic coming September 7-8. Experienced Syndicators and Sponsors know how to incorporate 1031 parties into Multifamily deals!

This question comes up all the time. I'm not a CPA by any means, and you should hire a firm that specializes in real estate.

But I do know that under the new tax regime, our investors that redeploy capital within a calendar year into our subsequent large deals pay little to no capital gains/tax. This is due to the cost segregation, bonus depreciation, and accelerated depreciation that is now allowed to be written off in year one. I'm happy to elaborate via a PM if anyone needs clarification.

@Austin Works

As many others already pointed out, you can 1031 into syndication if it is set up as TIC. However, typically the funds for 1031 would have to represent a sum that is significant enough to offer 1031 into syndication.

So in case you're seeking passive opportunities, then what @Natalie Kolodij suggested is more viable option. 

In general whenever you're looking to perform 1031 exchange, consider reaching out to 1031 intermediaries. 

Best!

You could invest in a Qualified Opportunity Fund that is buying property in an Opportunity Zone and retain the same benefit as if you invested in a 1031 exchange.  Additionally, for Opportunity Zone investments, only the gain has to be invested to retain the tax deferral.

@Austin Works , there are tax advisors that specialize in 1031s. I would search for those in your area. Ask do they specialize in real estate and 1031 exchanges, if the answer is no to any of those questions the move on to the next one. That strategy works, it may take you a little time to figure out which one. Pick the 5 guys in this area that you feel are the best an narrow it down from there.

I do feel you can 1031 into a multifamily, but getting legal advice is the key. A good syndication attorney may be give good advice on this as well

@Austin Works , Everyone's right about the syndication issue and about intent. syndication only TIC. Intent not flip. But the bigger issue might be what you mean when you say "I have sale proceeds". It sounds like you closed this property without a QI in place for the 1031 exchange. If so then your opportunity to do a 1031 is over. The QI must be in place prior to closing of the sale. And You cannot touch the proceeds.

If you have a QI in place then they should be helping you walk through this issue.  Their guidance is critical.

@Dave Foster I am actually sitting on a few offers at the moment, so looking for direction before beginning the closing process for the sale. I will reach out to my CPA, I am just not sure how familiar he is with syndication laws, etc. 

@Austin Works , Good for you!  Kudos for planning ahead.  Feel free to accept an offer whenever you're comfortable.  The QI for your 1031 only has to be in place prior to the closing of the sale.  So if you want to get it under contract now that's perfectly fine.

There's a lot of great CPA's out there. But knowing the ins and outs of syndication and how they fit with a 1031 exchange is a different animal. An experienced QI or syndication attorney is probably your best best. I'm actually working right now with a couple of groups who are developing a "syndication model" that accepts 1031 but is not a TIC although a TIC/DST structure for a 1031 into a syndication is the most common. It's a growing and transitioning field as you can imagine.

@Melvin Vargas , This is a good blog article.  I'll pm you with some more resources to help your education.