Living in my own duplex rental

[Alberto Vazquez]

Hello all, I currently have two rental properties (sfh) located in Houston. I hope to do a 1031 exchange and possible purchase a 4 plex with the intent of my living in one of the units. Is this allowed in the state of Texas. My rental properties are under my LLC and so would the duplex. Can I as an individual pay my LLC rent?

Thanks

[Ryan Thomson]

@Alberto Vazquez I don't think you can 1031 your investment properties into a "primary". I may be wrong though. You could buy it as an investment and then live in one unit I suppose. 

Not sure why you would want to pay your LLC rent unless you are trying to increase your LLCs income to qualify for something. If your rent was $1,000. Now you are increasing your LLC Income by $1,000 and you have to pay tax on that money. Seems like your net would be a loss. Am I missing something?

[Alberto Vazquez]

Hey @Ryan Thomson, I would intend to buy the duplex as an investment since this is required to do a 1031 exchange. Just unsure if it would be allowable for me to live in one of the units.

Your second point makes sense. The only reason I would "pay" my LLC is to show proof of income for more purchasing power at the initial buying stage.

Thanks

[Ryan Thomson]

Quote from @Alberto Vazquez:

Hey @Ryan Thomson, I would intend to buy the duplex as an investment since this is required to do a 1031 exchange. Just unsure if it would be allowable for me to live in one of the units.

Your second point makes sense. The only reason I would "pay" my LLC is to show proof of income for more purchasing power at the initial buying stage.

Thanks

 Nice! Good luck to you. Not sure about your ability to live in it. I would talk to a 1031 person and a lender and get more clarity.

[Dave Foster]

@Alberto Vazquez, Nothing wrong with this at all.  As long as the valuations work.  For the 1031 exchange you must purchase at least as much as your net sale if you want to defer all tax.  You can use any amount over that any way you want.

So let's say you were going to sell a rental for $200K.  You need to purchase at least $200K in replacement investment real estate.  But if the real estate was a duplex for $400K then you only need to use. half of it ($200K) for investment.  You could move into the other half.

Both FHA and conventional low down primary programs anticipate this. And you can purchase a small (4 units or less) MF that you live in one of the units. And you can do this with favorable interest rate and down payment.

A great plan!!!

[Matthew Kwan]

Yes you can do 1031 exchange for investment properties. Are you planning to sell both duplexes to exchange for 4plex? However, if you are planning to keep one of them and use one of your rental incomes, I would make sure your schedule E is filled strategically or lease agreement of 75% whichever it's lower the underwriter would use. @Albert Bui @Carlos Valencia

[Alberto Vazquez]

@Dave Foster Thanks for your response. Do FHA loans allow for this type of investment since the property would be under my LLC? I am the sole owner.

[Dave Foster]

@Alberto Vazquez, Vesting of the title is usually in the individuals name. That would be a great question for a lender, if a disregarded LLC would work. From the 1031 perspective it is fine.

[Pierre E.]

Quote from @Dave Foster:

@Alberto Vazquez, Nothing wrong with this at all.  As long as the valuations work.  For the 1031 exchange you must purchase at least as much as your net sale if you want to defer all tax.  You can use any amount over that any way you want.

So let's say you were going to sell a rental for $200K.  You need to purchase at least $200K in replacement investment real estate.  But if the real estate was a duplex for $400K then you only need to use. half of it ($200K) for investment.  You could move into the other half.

Both FHA and conventional low down primary programs anticipate this. And you can purchase a small (4 units or less) MF that you live in one of the units. And you can do this with favorable interest rate and down payment.

A great plan!!!

 for 1031... lets say you sell current owned prop for $200,500 you can buy another property for 201,000 and thats ok? 

[Dave Foster]

@Pierre E., That would work for 1031.  But you would have to use all of that property for investment.  If you wanted to live in half it wouldn't work.  Only the % of the property used for investment can be counted towards the 1031 reinvestment target.

Sell a rental for $200K and buy a duplex for $400 and you could live in half of it.

Sell a rental for 200K and buy a triplex for 300K.  You have to use 2/3rds ($200K) for investment.  You could live in the other 1/3rd.

[Carlos Ptriawan]

Quote from @Pierre E.:

Quote from @Dave Foster:

@Alberto Vazquez, Nothing wrong with this at all.  As long as the valuations work.  For the 1031 exchange you must purchase at least as much as your net sale if you want to defer all tax.  You can use any amount over that any way you want.

So let's say you were going to sell a rental for $200K.  You need to purchase at least $200K in replacement investment real estate.  But if the real estate was a duplex for $400K then you only need to use. half of it ($200K) for investment.  You could move into the other half.

Both FHA and conventional low down primary programs anticipate this. And you can purchase a small (4 units or less) MF that you live in one of the units. And you can do this with favorable interest rate and down payment.

A great plan!!!

 for 1031... lets say you sell current owned prop for $200,500 you can buy another property for 201,000 and thats ok? 

 You can , general rules:
- you can offset debt part with cash infusion, or boot it with PAL
- make sure you file schedule E correctly, this is extremely important in your case.
- if you really want to be safe, you could also try to rent somewhere for one year, and move to that duplex after one year. In tax return you use the address of your new rental place. 

I'm on similar path,except it's not a 1031 but straight owner-occpant.