A deeper dive for my first 1031 in Orlando FL

[Josh Calcanis]

Hi BP,

After digging through some of the forum posts and looking at Brandons blog post on 1031's, I've got a few remaining questions I'm hoping the community can clear up.

I currently have a SFH and Triplex in Orlando, FL. My next step is to try to 1031 one or both and use the income to put towards a larger property (4+). With that said, here's what I can't find...

- Can I utilize a 1031 for both properties and use one intermediary? Will the funds count as one or MUST they be separate for taxes if/when I ever realize the gains on them?

- For a 1031, it seems as if most fees and costs associated with selling a home stand. Is that correct? Seller is still paying commission on the home etc. 

- In terms of a strategy, due to the fact that we have 180 days to close and 45 to find a property are most properties found prior to selling the home? Is there a way to put an offer down (with the 1031 in mind) without selling your house? I.E. the numbers look great on the complex down the street, BUT your home hasn't sold yet. Can you work something out with the owner or do you just lose your chance?

Thanks BP!

[Dave Foster]

@Josh Calcanis, What you're describing as a possible course of action is what we would call a "consolidation exchange".  You would like to sell two properties and purchase one larger property.  This is absolutely fine and you do not need multiple intermediaries (in fact, more than one would really be a pain for all).  The best way to think of this is that you are doing two exchanges.  Each property you sell is one exchange.  For each exchange you are buying a piece of property that is a % of a larger property.  That is how you consolidate the exchanges. 

A couple of keys to watch out for.

1. Your reinvestment target in order to defer all tax is going to be the total of the two net sales.  Any amount you purchase less than the total of what you sell, or any cash you take out will be taxable without jeopardizing the rest of your exchange.  Or if you have any reinvestment amount left you can always buy an additional property.  This then is two sales and two purchases but you can allocate the proceeds in any manner you want.  You're QI and accountant manage how you want the allocations directed.

2. Because each property sale is it's own separate exchange and has it's own timeline  you're going to want to pay very close attention to the dates for the exchange that starts first.  If you want to include both properties in the  purchase the sales will have to fall so that you can include your replacement property on the first 45 day calendar and that you can close on the replacement during the 180 period of the first sale.

That leads into another  question of how to strategically mitigate risk of the time lines.  The statutory order of a 1031 is that you must close the sale before you close the purchase.  However it is perfectly acceptable and very good practice to get your replacement under contract as soon as possible - even prior to the sale of your first property.  In a seller's market it can be tough to negotiate contingencies for extended closings contingent on your 1031 but it is certainly worth asking.  And it is much easier for you to sell requiring a floating closing date so you can bunch the two property sales as closely together as possible.

A 1031 is an added on process and the intermediary's only role can be the 1031 function.  So you do have all of the normal fees and utilize all the same professionals plus the QI.