1031 exchange process

Physician · Oakland, CA · Member since 2017 · 60 posts · 28 votes

HI . Planning on a 1031 exchange with 200k in phoenix. My question is can I do any real estate transactions w 1031 money or do I need specifically to buy the same type of investment that was sold? How is the fix and flip market in Phoenix? For experience investors, what would you do for best cash return? When I did the math of buying an investment property, say a 400k 3/2 with 50% down, the math quite frankly sucks! Cash flow is only about $300/month and don't get me started on the CoCROI ! What's an out of state investor to do?

I live in the bay area, have 2 kids in private schools and one of them with special needs. Cash flow is my primary goal with appreciation secondary.

Thanks!! Glad to be back to this forum! I heart Phoenix!

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Anita Ahuja, You can use your 1031 exchange to invest in any type of actual real estate that you intend to use for investment. The type does not matter. The reason why REITS and most syndications will not work (@Kay March) is that you are not purchasing actual real estate. You are purchasing a membership interest in an entity that owns real estate. There is a process called a 721 exchange or an upreit that can be used once in a while to get into a reit. But these are fews and there's some fatal flaws if you're wanting to defer your tax for any length of time.

Kay is spot on with her recommendation to look into DSTs if you're wanting to go passive. They are basically a syndication whose structure has been blessed by the IRS for 1031 exchanges. Other than that you can look at any type of real estate anywhere in the country for your replacement.

The 1031 Investor5137 Reviews

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Kay March
Gainesville, FL · Member since 2013 · 127 posts · 21 votes
4y
If cash flow is your primary goal. consider high yielding REITs.
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Anita Ahuja
OP
Physician · Oakland, CA · Member since 2017 · 60 posts · 28 votes
4y
thank you @Kay March. I spoke to a Houston group that does REITs and they said they would not take 1031 money. Any idea if that is not a rule across the board?
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Mason WeissBusiness Member
Realtor · Phoenix, AZ · Member since 2021 · 523 posts · 239 votes
4y
Congrats on the $200K! For 1031 exchange, if you got your $200K from a business or investment property, then you would be able to buy properties for business or investment purposes but that could range from a SFR, multi-family, or commercial property. I would consider leveraging your 1031 equity as much as possible which could potentially increase your cashflow. $200k down could get you into a million dollar multi-family property with higher cash flow.
[email protected]480-818-7745
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Kay March
Gainesville, FL · Member since 2013 · 127 posts · 21 votes
4y
If the REIT idea is no good, have you looked at doing a 1031 exchange into a Delaware Statutory Trust? Those are designed for 1031 exchanges.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4y
@Anita Ahuja, You can use your 1031 exchange to invest in any type of actual real estate that you intend to use for investment. The type does not matter. The reason why REITS and most syndications will not work (@Kay March) is that you are not purchasing actual real estate. You are purchasing a membership interest in an entity that owns real estate. There is a process called a 721 exchange or an upreit that can be used once in a while to get into a reit. But these are fews and there's some fatal flaws if you're wanting to defer your tax for any length of time.
Kay is spot on with her recommendation to look into DSTs if you're wanting to go passive. They are basically a syndication whose structure has been blessed by the IRS for 1031 exchanges. Other than that you can look at any type of real estate anywhere in the country for your replacement.
The 1031 Investor5137 Reviews
Website View Page
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Kay March
Gainesville, FL · Member since 2013 · 127 posts · 21 votes
4y
@Dave Foster Thank you for mentioning the 721 exchange, or "UPREIT," as it seems to be called. A quick Internet search makes it look promising, if complicated, and it might interest @Anita Ahuja, since she says that she already contacted a Houston REIT group that does REITs (even though that particular group didn't do 1031 exchanges). I will be looking into it myself, so thanks again!
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Leslie Pappas
Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
4y
Originally posted by @Dave Foster:

Kay is spot on with her recommendation to look into DSTs if you're wanting to go passive. They are basically a syndication whose structure has been blessed by the IRS for 1031 exchanges. Other than that you can look at any type of real estate anywhere in the country for your replacement.

@Anita Ahuja, feel free to check out my blog here on BP for more info in DSTs. I help real estate investors re-invest their 1031 Exchange proceeds into DSTs.
https://www.biggerpockets.com/member-blogs/7993-cashingin-tax-free-1031-exchange-and-dsts
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