1031 Multi to SFRs

Investor · Eagle Point, OR · Member since 2011 · 185 posts · 123 votes

Hi BP

Have a 10 unit apartment in Memphis & thinking about doing 1031 into SFRs. Anyone done this & what is process/problems, financing, etc?

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Dave FosterBusiness Member

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

@Mike Mosee, a diversification exchange would be worth exploring if your goal is to move from one concentrated investment into multiple replacement properties, such as several single-family rentals.

The common concern is that a 1031 exchange requires you to identify replacement properties within 45 days of the sale and complete the purchase within 180 days. So ideally, you should have a solid list of replacement properties long before your old property is sold and the identification period starts. You could even get your properties under contract for your replacement properties within that 45-day period; you just can't take title to them until your old property is sold.

The reinvestment requirement is also important: to defer all taxable gain, you need to reinvest the exchange proceeds and acquire replacement property of equal or greater value. But the hidden strategy for you is that you can allocate the proceeds from your sale any way you want. It's not uncommon to use the proceeds to buy one or more properties for cash. And use the remaining proceeds as down payments. This can simplify the amount of lending needed. And leave untapped equity after your exchange that you can easily access after your 1031 when another great opportunity comes along.

A diversification strategy has a few more moving parts. But if you make sure and plan with your qualified intermediary well before your sale, you'll be fine. They'll guide you throughout the exchange process. Good luck!

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Magda Rose
Member since 2024 · 12 posts · 5 votes
1w
Hi Mike,
I just completed a 1031 and considered the Memphis area. If you are going to stay in the Memphis area, highly recommend MidSouth Home Buyers. They manage turnkey properties and since the process is all in-house, my experience has been seamless. Plenty of financing options and even some specials and rate buydowns from MidSouth offered. Good luck!
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Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 521 votes
1w
If going to be purchasing non owner occupy rental properties, DSCR loans can be a great option to finance the SFRs. A mortgage professional who is experienced with 1031s and investment property financing is important to help everything go smoothly on the financing side. As far as doing a 1031 exchange, the most important thing I have seen when an investor is doing a 1031 exchange is that deadlines are met for the transaction and that a 1031 accommodator is used. Happy to connect to discuss further.
[email protected]818-770-0340
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
1w
@Mike Mosee, a diversification exchange would be worth exploring if your goal is to move from one concentrated investment into multiple replacement properties, such as several single-family rentals.
The common concern is that a 1031 exchange requires you to identify replacement properties within 45 days of the sale and complete the purchase within 180 days. So ideally, you should have a solid list of replacement properties long before your old property is sold and the identification period starts. You could even get your properties under contract for your replacement properties within that 45-day period; you just can't take title to them until your old property is sold.
The reinvestment requirement is also important: to defer all taxable gain, you need to reinvest the exchange proceeds and acquire replacement property of equal or greater value. But the hidden strategy for you is that you can allocate the proceeds from your sale any way you want. It's not uncommon to use the proceeds to buy one or more properties for cash. And use the remaining proceeds as down payments. This can simplify the amount of lending needed. And leave untapped equity after your exchange that you can easily access after your 1031 when another great opportunity comes along.
A diversification strategy has a few more moving parts. But if you make sure and plan with your qualified intermediary well before your sale, you'll be fine. They'll guide you throughout the exchange process. Good luck!
The 1031 Investor5140 Reviews
Website View Page
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Leonard Spoto
Member since 2008 · 4 posts · 1 vote
1w
A 10-unit into SFRs works fine as a 1031 — the like-kind test is about investment vs. investment, not about matching property types, and you can buy anywhere in the US.
A few mechanics to get right on this one:
The 45-day identification clock starts at the closing of your 10-unit sale, not when you start shopping. With multiple SFRs as replacements, the 3-property rule is your friend — you can identify up to three properties regardless of value.
The part that trips people up on multi-to-SFR deals is the debt. To defer all the tax you have to reinvest all your net cash AND replace the debt. Say the 10-unit carries a $400K loan and the SFRs you buy only carry $300K in new loans — that $100K difference is taxable boot unless you bring cash to closing to cover it.
And all the replacements have to close inside the same 180-day window, so identify backup properties in case one falls through.
Full disclosure: I'm a Qualified Intermediary (Asset Exchange Company) — I do these daily. Happy to answer follow-ups.
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Quetzaly TorresPro Member
Investor · Jacksonville, FL · Member since 2026 · 51 posts · 6 votes
1w
Mike, what's prompting the move from your 10-unit into SFRs? Looking to diversify, simplify management, or something else?
I'm involved with an investment group that acquires multifamily properties and also works with SFR opportunities, so there may be an interesting fit on both sides of your 1031.
Have you already listed the Memphis property, or are you open to discussing a direct sale?
If so, I'd be interested in taking a look at the T12, current rent roll, and your target selling price to see whether it fits our acquisition criteria.
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- Mike MoseePro Member
  OP
  Investor · Eagle Point, OR · Member since 2011 · 185 posts · 123 votes
  2d
  HI Quetzaly,
  Open to talking about it.
  Thanks,
  Mike
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Thomas Fragoza
Member since 2020 · 21 posts · 6 votes
3d
@Mike Mosee, Dave covered the exchange mechanics well. I'll add one thing from running Memphis numbers: going from 10 units under one roof to a handful of houses changes your expenses more than people expect.
Every house carries its own insurance policy, roof, HVAC and turn costs. When I screened every active Memphis-area listing this week at full expenses, 391 of 2,854 cash flowed (341 with insurance at a flat $1,500), and 2–4 units held up a lot better than single family.
So before the 45-day clock starts, get real insurance quotes on two or three candidate houses and run each one on its own numbers, not a portfolio average. And if you'll identify more than three properties, talk through the 200% rule with your QI early.
I built this screen through my business, Row Home Solutions.
Thomas
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Jamie Parker
Real Estate Investor · Memphis, TN · Member since 2016 · 429 posts · 142 votes
1d
@Mike Mosee
long shot question of the day, Would you consider going up to a larger multifamily VS Diversification to an equal amount of singles? Secondly, If you were to go to singles, Where would you want them to be? What type of rentals would you aim for Or have you though that far ahead about it?
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