High proportion of vacation rental and MFR sales are 1031X Exchange Transactions

[AJ Wong]

In reviewing our 2023 production at least 1/4 of all our STR (particularly luxury STR) and multi family sales were the result of 1031X transactions in which the seller sold a like kind property towards a high cash flow vacation rental.

The typical acquisition profile is a luxury beach vacation rental in the $650-$850k range either with cash or 50%+ down payment from the sale of a property in another state. Investors utilized either DSCR loans or lenders that allowed short term rental income to be calculated for income purposes.

These transactions can require a bit more planning as buyer(s) have a tight timeline to execute. On a positive, 1031X transactions (provided the contingent transaction closes) are generally reliable for sellers.

Buyers and brokers will want to note how the contract is written (LLC vs individual) and if necessary align a lender that can close in the appropriate entity.

Many title companies have a 1031 exchange division that can coordinate transactions across states. 

A proper (and legal) contingency or addendum that the seller is to cooperate with the 1031X is best taken from your state clause form library. 

What are the top asset classes that investors are targeting in your areas? Are they re-leveraging or closing cash? Are they moving the capital out of State?