Can Multifamily Syndication Deal Do 1031 Exchange?

[Lue C.]

Hi,

I have invested in a multifamily apartment complex syndication deal. The Sponsors said when the Company (LLC) sells the property in 5 years, they would try to do a 1031 exchange and roll the proceeds of the sale into another deal. Is this possible? If yes, I would like to know how that can be done? The LLC that owns the current property will buy a "like kind" multifamily apartment - just like a single family house would?

Has anyone successfully done it?

Thanks!

[Dave Foster]

@Lue C., Any tax paying entity can perform a 1031 exchange. In this case the tax payer for the MF apt. Complex can sell that complex in 5 years and do a 1031 exchange. The LLC will also have to be the purchaser of the new property. If you are an investor in the syndicate you are probably being given a membership interest in the LLC. As such you do not own the real estate you own the LLC. So you cannot do your own 1031 on your %. The LLC will do the 1031 and you will go forward with the LLC.

Note that the LLC is not restricted to purchasing another apt. complex to complete their exchange. It may replace the complex with any other type of investment real estate. Or it may choose to not complete a 1031. In that case, once again you cannot do your own 1031. You are stuck with the decision of the LLC in total.

This type of scenario is common and doable.  But you must understand the limitations on your options going into it.  Since you are purchasing membership interests in an entity and not real estate you do not have the opportunity to separate from the entity with your own 1031 as you would with a tenant in common interest.