Selling rental with FHA loan and 1031 questions

1 Reply

Hello all. I have a SFH rental property (in Eastern WA) I'm considering selling in order to invest in a multifamily property (in Western WA). The market value is about $300k and the balance on the loan is $165k. It's an FHA loan at 3.75% originated in 2009. We paid down an extra $18k to eliminate PMI a few years ago.

The tenants have been there for 2 years and may be interested in buying. So we might get lucky and do a FSBO and save come commission/fees. I'm wanting to invest in a multifamily property somewhere in Western WA and the market moves quickly, so offers with sale contingencies are tricky. I have a few questions.

1. Since 3.75% isn't possible anymore, and as I understand it the FHA loan is assumable, would it make sense to try to sell to our tenants and transfer that way? Let's say there were interested in that. They'd only assume the original loan, and I'm assuming would need a second loan to cover the difference. Is that a problem for them to finance that way? They'd just approach their lender and look for a second mortgage?

2. If I wanted to do a 1031 with the scenario listed above, would that affect anything about doing the 1031? I don't think it would but I'm still researching the ins and outs of a 1031.

Thanks!

@Jon Ostojic , This would not affect your 1031.  The loan is in essence forgiven to you and transferred to the buyer.  So you would be left with same net sale to reinvest.  And the note assumed by them would reduce the cash into the exchange account.  All should net out.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.