When to sell SFR for 1031 exchange

5 Replies

All Wanted to get feedback on a conundrum that I face about my timeline for next 1031 exchange .

I have two SFR that I am prepping to sell as I continue to scale into Multi family , one on Colorado Springs and one in Olympia, WA. Both have appreciated greatly , especially in last year and not getting return on equity I would get in Multi-family. The current tenant leases don't line up right now, and I discussed timeline options with my property managers a about when the tenants can move out.

The Colorado house tenant I has been there since 2013 and currently MTM. When my property manager gave notice to the tenant that I intended to sell, they asked for extension until 30 November . The house in WA tenant lease is up on November 1 , but when that PM contacted them about moving out , they asked about getting out sooner ( Mid august , and some assistance * August rent and some money to help move)

Azimuth check on my assumption I will get higher prices for that will get higher prices from owner occupiers rather than investors . . There are tenants in place , but rents haven't kept up with the price appreciation so neither hit the 1% rule , more like .5% rule

If goal is to stack properties together for 1031 exchange , would it be better to sell in September ( with the cost of assisting the tenant), or November. A little bit worried about the softening market , and if eviction moratorium may disrupt the market by increasing the supply side

Hey @Kenneth Hynes , that is quite the pickle.  I was just toying with the idea of 1031ing two properties into one myself but decided against it.  You are really going to need to thread the needle on this one, but it is possible.  I would start looking at possible properties ASAP.  

To answer your question, I think the sooner you can put them on the market, the better.  I keep hearing about people thinking the market is going to crash when the eviction moratorium is over but I don't see that all.  There is so much demand out there that decent properties will be gobbled up.  People have too much equity in their homes to be foreclosed on. 

November is the worst month to list a property. You are headed into the Thanksgiving to Christmas gap. People are thinking about the holidays, not moving. It would be better to wait until February or March if you can't motivate them to be out in September. It is worth paying them cash to get them out in this situation, because time of year has a big effect on sales price. You will get way more money selling them without a tenant in place, so I think that is the right choice. 

I am not super worried about the eviction moratorium affecting housing supply, but smart to keep an eye on it.

@Kenneth Hynes and @Brad Hammond , Yep it's that kind of market.  Our clients having the most success now are shifting their paradigms.  Instead of focusing on their sale, they're expending efforts to find their purchase first and locking it up.  Then they're putting their old properties on the market and getting the quick sales.  You can go into contract for your replacement at any time.  You just can't take title to it until after you close your sale.

By focusing on the purchase first you ensure a property you like.  And Selling old properties isn't much of a problem right now.

Take what the market gives you.

@Kenneth Hynes I think what Dave is referencing above is what's called a reverse 1031 exchange. Locking up the new property prior to selling what you have. I would recommend selling your SFR's' vacant if you can. This will generally be smoother for showings and will allow for more competition as you will discourage some buyers with tenants in place. I hope you find a good solution! Feel free to reach out any time if you want to bounce any ideas around. I am an investor, broker, and REI meetup organizer here in Olympia!

Not quite a reverse exchange @Jake DeAtley but close.  In a reverse exchange the new property is actually purchased by the qualified intermediary and held for the client.  This works too.  But is much more complex and expensive.

What I''m suggesting is simply going into contract for your new property and immediately putting your old property on the market market once you've identified that property or gone into contract on it.  In many markets as you know DOM for properties is less than a week with closings within 30 days.  So it is very possible to get a contract on your new property before you close the sale of your old property.  You'll close your sale before your purchase.  But you'll save the high reverse exchange fees.  All just by taking what the market gives you.