Multifamily 1031 Exchange

[Danny Celestin]

Hey BP Family, I have a few questions regarding 1031 exchange/exit strategy. Hopefully someone can provide some helpful advice to me. Thanks in advance!

Overview: Purchased a duplex with FHA 203K Loan in Feb 2022 (located in Los Angeles). It's currently under renovation. I just fired my general contractor and I'm currently conducting interviews. My plan was to renovate (add an ADU, extra bathroom, etc.), rent it out, and use the cash flow to purchase my next rental property but after reading Brandon's The Multifamily Millionaire (which has been super helpful as I navigate my first investment property) I realize that it would take my building over a decade to generate PURE cash flow (yes, I ran the numbers before I purchased it but my excitement to get my hands on my first investment property was uncontrollable). Renovation should be done by the Spring of 2023.

Questions:

1. How long do I have to keep the property in order for it to qualify for a 1031? (I currently live in one unite but I won't after a year is up)

2. My intentions was to live in it for a year and then rent it out. Now that I am thinking about selling it how long do I have to keep it before I can 1031? 

3. It's a duplex located in Los Angeles. It will probably sell for around 1.2/1.3M. Planning to purchase a multifamily in the South East or Midwest (yes, I have my CCC). Since my building is a residential can I only purchase a 2-4 unit building or can I purchase a commercial? And what does the minimum price point have to be? 

4. Can the property I purchase be listed at less than what I sell my duplex for but need some work. 

For example: If I sale my multifamily for $1.3M can I purchase a 16 unit in Lafayette, LA for $900K that needs a $300K renovation? 

5. Is traditional financing used when you are 1031'ing? Let's say I walk away with $100K in profit. If I have to put 20% down on a multifamily that's listed for $1.3M than that's $260K down payment. Short $160K plus reserves. See the problem here? 

6. Last question I promise. What are you thoughts on selling without doing a 1031? Walk away breaking even maybe a little profit and with the learning experience (which to me was worth every penny). Pay taxes on my capital gains and reinvest the smaller amount of money in another market. This way I don't need to purchase something worth $1.3M. OR get my duplex to perform the best it can and save as much cash (which without creative financing would take me 1-2 years to save up enough) to invest in a smaller market with 20% down. 

Thanks in advance for any advise and Happy New Year! 

[Dan H.]

Seeing that you occupy and have occupied it for almost a year, I question why you would not strive for the 2 of 5 years rule to exempt the gain.  Granted you would have to live in it another year, but it has so few restrictions compared to 1031.

Good luck