1031 Exchange / Advice Tips

[Nathan Frost]

Hi, I have two properties that I am looking to sell but once to use the profits wisely. My plan is to buy 1 STR and 1 LTR. How can I go about doing this either with a 1031 or what is the best method to attack this? My plan is to sell one in May and the other in July.

[Justin Brickman]

A few tips that should help as you go! 

-As you list your homes, try to have a list of properties in mind and which strategy you want to go with first (STR or LTR.)

- Get with your CPA/accountant with your plan, so there's no surprises.

- Work with a realtor who has experience with 1031 exchanges (whether it's as an investor or helping past clients)

[Erica Calella]

Planning in advance for a 1031 exchange is crucial. Once you close on the sale of your relinquished property, then the clock to ID a replacement property starts ticking. 45 days is manageable but the time goes quickly and a lot can happen in that time. It would be best to atleast have an idea of what home/market you have in mind, so doing that research now will greatly benefit you. 

Using a good/responsive qualified intermediary is also really important. I did my first 1031 exchange with First American Exchange and they helped me through the process to ensure I was following all of the exchange rules properly. The qualified intermediary will also manage all of the funds during this transaction, so you want someone trustworthy and reliable in that aspect too. 

[Sean Ross]

Quote from @Nathan Frost:

Hi, I have two properties that I am looking to sell but once to use the profits wisely. My plan is to buy 1 STR and 1 LTR. How can I go about doing this either with a 1031 or what is the best method to attack this? My plan is to sell one in May and the other in July.

@Nathan Frost,

Thanks for posting.  If you are selling two properties that have appreciated (or have taken significant depreciation), then a 1031 exchange is almost certainly a good route since you're looking to reinvest. 

As @Erica Calella mentioned, planning in advance of the 1031 is very important, particularly if you're not terribly familiar with the rules and flow of an exchange. 

A few rules to keep in mind as you get started:

 - To get full tax deferral, you have to replace the full value of what you sell.  If you sell two properties at, say, $700K and $300K respectively, then you can either combine those into a single exchange and buy at least $1M of replacement properties OR you can split them and have one exchange trade for at least $700K and another for at least $300K. 

 - To get full tax deferral, you have to move all of your equity over into the new properties as down payment. 

 - You only have 45 days from your sale date to come up with a list of properties that you might want to buy next.  This rule is ironclad and can be tough to navigate. If you're combining your two property sales into a single exchange structure, then the first sale date in May will start your 45-day clock for both properties. 

 - You have to work with a Qualified Intermediary; the IRS won't let you complete a 1031 on your own.  My company, 1031X, has been in the business for 31 years nationwide, and we have the highest client satisfaction rating in the US.  Our consultations are 100% free if you want to brainstorm about the best method to attack your exchange. 

[Nathan Frost]

Quote from @Sean Ross:

Quote from @Nathan Frost:

Hi, I have two properties that I am looking to sell but once to use the profits wisely. My plan is to buy 1 STR and 1 LTR. How can I go about doing this either with a 1031 or what is the best method to attack this? My plan is to sell one in May and the other in July.

@Nathan Frost,

Thanks for posting.  If you are selling two properties that have appreciated (or have taken significant depreciation), then a 1031 exchange is almost certainly a good route since you're looking to reinvest. 

As @Erica Calella mentioned, planning in advance of the 1031 is very important, particularly if you're not terribly familiar with the rules and flow of an exchange. 

A few rules to keep in mind as you get started:

 - To get full tax deferral, you have to replace the full value of what you sell.  If you sell two properties at, say, $700K and $300K respectively, then you can either combine those into a single exchange and buy at least $1M of replacement properties OR you can split them and have one exchange trade for at least $700K and another for at least $300K. 

 - To get full tax deferral, you have to move all of your equity over into the new properties as down payment. 

 - You only have 45 days from your sale date to come up with a list of properties that you might want to buy next.  This rule is ironclad and can be tough to navigate. If you're combining your two property sales into a single exchange structure, then the first sale date in May will start your 45-day clock for both properties. 

 - You have to work with a Qualified Intermediary; the IRS won't let you complete a 1031 on your own.  My company, 1031X, has been in the business for 31 years nationwide, and we have the highest client satisfaction rating in the US.  Our consultations are 100% free if you want to brainstorm about the best method to attack your exchange. 

Would love to.  I cant sell one property till July so maybe if I wait to sell the other one till late June that might work best.

[Dave Foster]

@Nathan Frost, timing is important if you want to combine those.  It's a great idea because it gives you the greatest flexibility in your purchasing.  But equally important for you to think about is going to be the allocation of your net proceeds in the purchase.  Because you can allocate your proceeds any way you want.  It might be possible to maximize your lendability.  Or minimize your mortgage risk by buying one property for cash or little debt.  And buying the other one with maximum leverage.

This can be especially beneficial to you if the short-term rental you want to buy is positioned such that you could take advantage of a 2nd home loan.  The terms are usually better.  And the down payment a little less.  You could use the loan for that property.  and then use the bulk of your proceeds to purchase the second house with less debt that is higher interest.

It's a juggling game.  But nice to have options.