where to investment 1031 money

[John Fong]

I'm selling my investment property and want to do a 1031. I'm thinking about where to invest that money into, and was wondering if the following is possible? Anything to pay attention to in each of the following scenario?

1. use the 1031 money to buy 2 investment properties with a combined values >= the sales price

2. use the 1031 money to improve one of my existing investment properties (e.g. building an ADU / remodeling)

Thanks

[Dave Foster]

Spot on @Dan H. @John Fong, you cannot exchange into improvements on property you own without an incredible amount of time, money and risk. The IRS doesn't like the process. For something like an ADU it's surely going to be cost prohibitive.

If you want to buy a cheaper property with your 1031 that has the ability to put an ADU on the lot. Then a reverse exchange would work well for you. Your QI for the 1031 takes title to the property before you. And then we can hold it for up to 180 days while you get the ADU in place. And you finally take title to the property at the purchase price reflecting both the existing structure and the ADU. These are also more expensive and complicated. But much less risky. This might also be a good option for you.