Can you add a partner to a 1031 exchange

Question

I have a friend that is purchasing a strip mall with money from a 1031 exchange. The exchange will fund 25-30% of the purchase price. He wants me to partner with him and provide the rehab money. I know he can enter into a partnership at the purchase since he owns the first property in his own name, but can we create a llc after the exchange goes through and enter into a partnership shortly after?

From the research I have it looks like we can buy it as tenants in common, but not as a partnership? Not sure if I interpreted it correct?

I don’t really want to own the property in my own name. I would rather it be in an llc.

From the research I have it looks like we can buy it as tenants in common, but not as a partnership? Not sure if I interpreted it correct?

I don’t really want to own the property in my own name. I would rather it be in an llc.

Dave Foster · Answer

@Joseph Labit, Your friend has to purchase at least as much real estate as he sold (25% of the new property) as the same tax payer who sold to start the exchange. So you've actually got several options.

1. You could both take title to the property as tenants in common. And then later form an entity and contribute the property into it.

2. He could take title to what he needs to as a TIC. You could take title to the other interest as the entity you want later. then let him contribute his interest to your entity in exchange for membership interest.

3. He could take title to the entire thing. Then after the 1031 contribute it into a new entity. And after that give you membership in the new entity in exchange for ???? consideration.

Joseph Labit · Answer

@Dave Foster thank your for clarifying this for me. It sounds like the second option would work great for us. If we did this option, would I be able to get on the mortgage with him as well?

Not sure how the 25% of the new property comes in? He sold his old property for $335,000 and the property we are looking at is $850,000.

Wayne Brooks · Answer

@Dave Foster ??

Joseph Labit · Answer

@Dave Foster Thank you for your help!

Dave Foster · Answer

@Joseph Labit, yes you could both be on the mortgage.

Dave Foster · Answer

@Joseph Labit, You had just mentioned that the exchange would fund 20-25% of the purchase price. So I assumed that the sales price of the old property was 20-25% of the price of the new property. He'd need to take title to approx 40% of the new property.

Can you add a partner to a 1031 exchange

Can you add a partner to a 1031 exchange

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