1031 Exchange

[Rob Shinn]

I have a question regarding a 1031 exchange.   I just purchased my first flip and should make a nice return on it.  My question is, with a 1031 exchange do I have to find a brand new property or can I use the proceeds from the flip to pay down existing buy and hold properties I already own?

[Bill Exeter]

Hi Rob,

Properties that are acquired with the intent to rehab/flip do not qualify for 1031 Exchange treatment.  They are actually being acquired and "held for sale" rather than being "held for investment" as required under 1031 Exchanges. 

Also, the pay down or pay off of debt is not considered the purchase of real estate and would not qualify as the purchase of replacement property in a 1031 Exchange.  You would have to acquire another rental/investment property to qualify.