Seeking 1031 Exchange advice

[Richard Chang]

Hi,

Thank you all for your responses in advance.

I am considering selling one of my two rental properties and do a 1031 Exchange.  I’m not an Accredited Investor, so I won’t be able to invest at 1031crowdfunding.

Question #1: Is there any 1031 Exchange crowdfunding web sites for non-Accredited Investors?

Question #2: Is there any NNN 1031 Exchange web sites for non-Accredited Investors?

My rental property’s market value is about $340K and the mortgage balance is $150K.  If I sell it, the proceeds will be around $170K after deducting all associated costs.  Based on my reading at BP, for a 1031 Exchange, I know that I have to purchase a Replacement Property for at least $340K and I have to put all the proceeds $170K into a replacement property purchase to defer tax.

Question #3: If I can provide additional $30K to combine with the $170K (a total of $200K), does this mean that I can only afford to purchase a Replacement Property between  $800K (with 25% down) and $1M (with 20% down)?

Question #4: Is there any NNN 1031 Exchange properties below $1M?

Thank you all very much.

Richard

[Dave Foster]

@Richard Chang, 

Question #1 The world of fractional ownership is the wild west with little regulatory consistency in product or platform. That being said there are most assuredly some NNN or TIC or other fractional ownership opportunities that will market themselves to the non-accredited 1031 investor. You'll want to vet carefully with your QI to make sure it complies with the federal statutes. But they're out there. @Mark Creason, @Robert Hetsler and @Drew Reynolds come to mind immediately.

In addition to those sources you may want to look at something a step below the fractional ownership product - the turn key providers provide you a way to fully own property that is 1031 compliant but be completely passive in managment and development.  @Tom Ott and @Melissa Nash live in that realm and I believe our esteemed @Jay Hinrichs has a website dedicated to turn key company reviews.

Question #2 - The two part rule is that in order to defer all tax you must purchase at least as much as your net sale (contract price minus costs of closing) and you must use all of the net cash (net sale minus mortgage payoff) in the next purchase or purchases.

In your example if your contract price is $340K and you  have closing costs of say $40K just for this example.  That makes your net sale $300K.  Your mortgage of $150K is paid off and net cash is $150K.  So in order to defer all tax you must purchase at least $300K and use all $150 in the next purchase or purchases.  It does not have to be just one property and there is no requirement to allocate the cash in a certain way.  You could buy one property for $100K cash and use the $50K as down payment.  This flexibility in allocation will be key with any turn key or fractional provider.

You also can take cash out if you want but you will pay tax on the difference without jeopardizing the remainder of your exchange.

Question #3 for your lender.  But it is perfectly fine to add your own funds to purchase a larger 1031 replacement property.

Question #4 - See question #1