Two 1031 Exchange Questions....

[Luke Carl]

1. Let's say I sell a house for and clear 100k. Can I 1031 Exchange into 4 houses with 20% down? (I just mean the legal side of things. Not asking about the financing side of things). 

2. Can I take the entire 100k and buy one house cash, rehab it, the finance it? 

[Dave Foster]

@Luke Carl, Think of it as a two part rule if you want to defer all tax.

1. Purchase at least as much as your net sale (the contract price minus closing costs except for mortgage pay off).  If the contract price of your house was $250 and you had closing costs of 10% then your net sale would be $225K

2. Use all of the proceeds from the sale in the next purchase or purchases (the net sale minus mortgage pay off or the amt of cash your received that went into your exchange acct.)

This is if you want to defer all tax.  Any amount you buy less than what you sold or any cash you take out the IRS says you are taking profit first.  So you would pay tax on that amount but shelter the remaining in the 1031 exchange.

You can allocate the amounts in any way you want.  You could put all 100K down on one more $225K house.  You could buy one house for $75K cash and put $25K down on a $150K house.  You could put $25K down on 4 $100K properties.

You cannot exchange into improvements on property you already own so in order to include significant improvements in your 1031 you would need to do what is called a reverse exchange.  In a reverse exchange the qualified intermediary takes title to the new property before you in an entity called the exchange accommodating title holder.  Once the improvements are done then you take title to finish up the exchange.   Reverse exchanges can very handy but they are relatively expensive and the cost compared to simply paying the tax on $20K or so usually doesn't justify it.

Your scenarios all look fine. My guess is the greatest confusion lay in what those initial reinvestment requirements were going to be. The 1031 works great with the BRRR strategy.