I have a rental that is too big and nice to produce a reasonable ROI. I would like to do a 1031 exchange for apartment buildings that need renovations. Can I include renovations costs with the cost of the apartments? For example, If I sell the rental house for $300,000, can I purchase some apartment buildings for $200,000 and spend another $150,000 in renovation costs to satisfy the 1031 exchange requirements? Thanks.
Yes, as long you don't actually receive the money, And the renovations are completed and paid for within the same 180 day clock you have to buy the replacement property.
Awesome, thank you for your help.
@wayneBrooks to still qualify for that 1031 exchange does it have to be one single purchase of a property that adds up to more then the amount he sold his last house . Or can it be multiple purchases that add up to that amount . In the given time period of course . Just curious .
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@Edgar Sulca , It is the amount that you are looking for not the number of properties. Just like an improvement exchange of a $200K property with $100K improvements can be done to satisfy a reinvestment target of $300K. You could also sell for $300K and buy 3 $100K properties. The key is to remember that the exchange starts with the sale of your real estate, ends when you take title, and all activity and funds must flow through your QI.
@Dave Foster thank u very much for clarifying that for me I wasn't sure if I could do that . Im interested in possibly doing that soon . You said the funds must flow though my QI. I don't know what that means??
@Edgar Sulca , Just like the reinvestment target requirements, one of the other key requirements to a successful 1031 exchange is that you must use the services of a qualified intermediary and they must be in place prior to closing the sale of your property. They document the transactions, counsel and guide your journey through the exchange, and hold and transfer the proceeds of the sale to your purchase. You may not have either constructive (the money stays at a title company under your control) or actual (the money is in your hands or bank account) receipt of the funds.
Would I have to front all the renovation money or would the QI disperse funds as needed?
I wanted to clarify the issues being discussed here. Generally, in order to buy a replacement property, make improvements to it and have both the purchase cost and the improvement costs qualify for 1031 Exchange treatment, the legal title to the property must be acquired and held ("parked") by an Exchange Accommodation Titleholder (usually a sister company of the Qualified Intermediary) during the 180 day exchange period. The improvement costs must be spent and the corresponding construction must be completed during the 180 day exchange period while the Qualified Intermediary is holding legal title.
You can not acquire and close on the property, take title to the property, and then make the improvements after the 1031 Exchange has been closed out and have them count toward your 1031 Exchange.
@Howard Mayberry , Your exchange proceeds can be used for the renovations in a properly structured exchange.
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