1031 Exchange Single Fam to Multi Fam

[Robert Dunbar]

Hi,

I was thinking of selling one of my single family rentals to buy a multi family rental using a 1031 exchange. The multi family property would be between 2-4 units. I have roughly 50% equity in a $300k single family home, and would use the proceeds to put down on a multifam for a greater cashflow.

Who has done this exact thing and what are some of the pitfalls or benefits i might not be considering?

Thanks,

Robert

[Bill B.]

First check your intended market. When you sell your $300k property you’re going to pay about 10% in selling costs, so you have $270k. Then you pay off your $150k loan and you have $120k. So, the question is, what kind of property can you buy for $480k and how will it perform?

It must cash flow much better than your existing SFR as it will likely appreciate much less than your SFR. Are you self managing? Get prepare for a different kind of tenant, one who moves much more often, and a different kind of tenant problem, they don't get along with your other tenant. If you're using a PM, make sure they manage multifamily and are good at it.

The exchange part is easy. Find 1-3 target properties, list your property and the second you have a solid accepted offer start trying to get the target under contract. A couple months ago I was able to pull of the ideal situation with @Dave Foster . I closed on my replacement before my 45 days were up. If the deal had fallen through I would have had time to turn in a list with different properties on it.