First-Time Home Buyer Considering a 1031 Exchange Property — Good Idea or Red Flag?

[Michael Naval]

Hi everyone,

I’m a first-time home buyer looking to purchase a multifamily property and would appreciate some advice.

The property I’m considering is currently owned by a seller doing a 1031 exchange. One unit has been vacant since last spring, while the other unit is occupied by a tenant who would like to stay with the new owner and is currently on a month to month contract. If needed, the lease requires two months’ notice for the tenant to vacate.

My plan would be to live in one unit and rent the other, but I’m trying to understand whether buying a 1031 exchange property as a first-time buyer introduces additional risks or complications. Specifically:

- Does a seller’s 1031 exchange create more pressure, tighter timelines, or less flexibility during negotiations?

- Are there any financing, inspection, or appraisal risks I should be aware of?

- Would this situation be considered normal, or potentially a red flag for someone without prior real estate experience?

I understand I’ll still need to do full due diligence, but I’m curious whether experienced investors or agents think this is a smart move—or something better avoided for a first purchase.

Thanks in advance for any insight!

[Abel Curiel]

Quote from @Michael Naval:

Hi everyone,

I’m a first-time home buyer looking to purchase a multifamily property and would appreciate some advice.

The property I’m considering is currently owned by a seller doing a 1031 exchange. One unit has been vacant since last spring, while the other unit is occupied by a tenant who would like to stay with the new owner and is currently on a month to month contract. If needed, the lease requires two months’ notice for the tenant to vacate.

My plan would be to live in one unit and rent the other, but I’m trying to understand whether buying a 1031 exchange property as a first-time buyer introduces additional risks or complications. Specifically:

- Does a seller’s 1031 exchange create more pressure, tighter timelines, or less flexibility during negotiations?

- Are there any financing, inspection, or appraisal risks I should be aware of?

- Would this situation be considered normal, or potentially a red flag for someone without prior real estate experience?

I understand I’ll still need to do full due diligence, but I’m curious whether experienced investors or agents think this is a smart move—or something better avoided for a first purchase.

Thanks in advance for any insight!

 Hello Michael and welcome to BP!

Great questions here.

- Does a seller’s 1031 exchange create more pressure, tighter timelines, or less flexibility during negotiations? 
Most of the pressure is on the seller to perform the sale and purchase within the timelines.
That said, if you have your own timelines to follow (i.e. lease expiration on your current home, other deadlines, etc.) it can be challenging.
As far as negotiations, you have someone who does not have a lot of time to 'test' the market or play 'hardball' with unrealistic expectations (i.e. price & terms).
Sellers who are doing a 1031 exchange are motivated sellers in a sea of unmotivated & unrealistic sellers. 
For example, in my market: 57% of LISTED multifamily properties in New York City didn't sell this year. 37% of LISTED multifamily properties in the Suburbs (Long Island and Westchester) didn't sell.
The asking prices on these properties can be 10%+ above market value signaling unrealistic expectations and low desire/motivation to actually sell

Questions to ask yourself: Is their asking price realistic? If so, given current demand, how long will this deal be available? What could it potentially sell for

- Are there any financing, inspection, or appraisal risks I should be aware of?

Your lender and home inspection can answer these questions.
On the financing end, you want to make sure you can obtain a commitment letter in the timeframe specified on the contract. Failure to do so can result in you losing your deposit should you be unable to close on the property.
Inspection risks include issues with the foundation, flood risks, roof, mechanical systems, floors, mold, asbestos, termites, and 100s-1000s of other things. Your home inspector will outline the most alarming issues as well as point out low-moderate priority issues.

- Would this situation be considered normal, or potentially a red flag for someone without prior real estate experience?
Normal. 

All the best!

Abel