2 Properties - 1031 Exchanges - Need advice on what to do..

[Tara Kinney]

Okay, 

So this may be a silly question, but I have found myself in a conundrum.   I recently sold two properties using the 1031 exchange, but didn't think this fully through.  So my plan was to use the equity to buy (finance) 3-5 more properties with the profit I received from those properties.

Problem - I can only have 4 financed properties in my name (mortgages), and I currently have my home with a mortgage, so that leaves me with only 3 properties I can buy.  The problem is most homes that I have found that profit that best in this area sell for between $60-$100K - which means I need $12-$20K for my downpayment.  So that's great... I can buy two properties with that first property that net me around $28K to use... however, my second property net me around $56K to use.   I can't buy three more properties with that because I can't finance that many properties.

So my question is - what would you recommend?  I don't see any quality multifamily homes listing in the range of $250-$275K - which is what the purchase price would need to be to use up my downpayment money.  The other option is to use that money to purchase a property outright, however I don't think I can do that with a 1031 exchange right?  The property I sold to get that money just sold for $174K so it is my understanding that I the purchase price of the next property (or combined properties) much be more than that.  Is that right?

Any advice on what are some good options would be appreciated :)

Thanks!

Tara

[Daniel Karbownik]

Tara - I am nervous for you.  Are you fully educated on 1031s?  I suggest you hit the books ASAP, or consult a real estate attorney ASAP.  There are so many rules that govern a 1031 exchange, they can be daunting to navigate.  For starters, when you sell your property, you are not allowed to receive the proceeds from the sale.  They must never hit your account - you need an intermediary to hold the proceeds for you.  Have you done that part?  If not, you may have already disqualified yourself.  

Additionally, there are strict timelines about identifying, in writing, potential properties that you will exchange into.  Has it been more than 45 days since you sold?  Have you identified replacement properties?  Furthermore, you have a deadline of when you actually need to purchase the replacements.  Check out this site as just 1 of the tons of resources out there:  https://apiexchange.com/acquiring-multiple-replace...

And lastly, there is a HUGE false premise in your post:  "I can only have 4 properties in my name (mortgages)..."   That is absolutely false.  Mark Ferguson (I believe he has been a guest on a podcast here) writes a good blog named www.investfourmore.com that is predicated on the fact that there are ways to finance more than 4 properties.  Try a local bank instead of a big one.  

Hope this helps a bit.  Good luck