Can you1031 Single-family rental to Multi-family?

Question

Thanks BigPockets. Love your “show”.

1st time question.

I want to do this and it will also involve exchanging in one state and acquiring in another. Does this cause problems?

Thank you for your responses. Bruce

Dave Foster · Answer

@Quan Thai, Yes.  Any type of investment real estate can be exchanged in a 1031 exchange for any other type of investment real estate.  And it can also be any where in the US.

The strategy of moving from an environment of expensive properties (CA) to another state with multiple properties using the 1031 exchange is excellent for generating more cash flow.

Bruce Archer · Answer

@Corby Goade

Thank you Corby. Great info. My head is swimming in lots of fun new strategies. Looking at summer timeframe for both.

Dave Foster · Answer

@Bruce Archer, Clients do this all the time.  You can 1031 from any type of investment real estate into any other type of investment real estate.  And you can 1031 from a US property anywhere else in the US (and a couple of territories but that's another story).  Changing class of real estate and changing location of real estate is a very strategic use of the 1031 exchange.

Bill B. · Answer

Not even a little.

I suggest you connect with @Dave Foster   He can set you on the right track to keep you legal and tax deferred.

Quan Thai · Answer

Thank you so much for the information. Very helpful!

I was wondering if 1031 exchange would allow an investor going from 1 sfh to multiple mfh properties?

The reason being that sfh in Cali might cost around $1m and mfh in other areas cost a portion of it.

Dave Foster · Answer

@Bruce Archer, @Corby Goade makes a good point about accessing your local title company.  But the relationship is a little different that described.  The umbrella corporations for several of the larger title underwriters also own QI services.  They are what we call "captive QI's.  In a few cases the QI actually owns the title companies.  They separate via legal entities but you can use both the title company and QI owned by them.  For that matter almost all of the good title closers in America have done a 1031 before and have a company (either captive or independent like us) that they refer to.

In any case you want to vet the experience and availability of the QI closely.  Because in many cases your experience will be dictated by the quality not of the firm itself but of the particular sales agent assigned to you.  And Corby's absolutely right.  Good QIs charge for 1031s and make it a point to answer questions willingly and thoroughly to enhance the clients experience rather than try to turn consulting itself into a revenue source.

Corby Goade · Answer

Hey Bruce- call a local title company. If you don't have one you like, call the company the closed the property for you in the first place. Most title companies have a 1031 expert who's job it is to make you comfortable with the process in hopes of them managing your transaction. They should be able to consult and advise you at no cost.

Dave Foster · Answer

@Bruce Archer, You and I are singing from the same page.  I've got my second one going to Gainesville this fall and we're looking for a small multi to ease the pain.  Any Gainesville Investors out there???

You can absolutely exchange that SF for the investment portion of that multi family. If you want to use the entire multi for the exchange you'll need to create an arms length rental agreement with your daughter.  Easy enough done.  And you can use your gift limits to give her back her rent.  Otherwise if you buy a 4 plex and she lives in one of the units you can only exchange for 75% of the new property.

For you it will be as simple as selling like normal and then purchasing like normal.  The qualified intermediary role is filled by someone like us.  We document the transaction and handle the transfer of funds.    The most important factor is that the QI must be involved prior to the closing of your sale.

From the day you close your sale you have 45 days to shop around and 180 days total to complete the purchase.  So there are some very real time constraints.  But they're manageable.

The fee for a garden variety 1031 shouldn't be more than $750.  That's kind of the cluster for most credible experienced national QIs.

I'll reach out with a road map by PM

Anna Strausbaugh · Answer

Hi Bruce! I’m a real estate agent in both Idaho and Washington and just did a 1031 6 months ago. Yes, you can go from a SFH to MF in a 1031 no problem.

You have 45 days from the sale of your property to identify your next property and 180 days to close it. I have a great 1031 exchanger from a title company whom I really like. I’d be happy to pass on her information if you want to discuss all the details with her she could answer all your questions. Message me if you’d like her contact info or if you want help buying and selling in WA and ID!

Sam Shueh · Answer

Like property-homes to MFH etc..  Not restaurants to homes as before 2018.

Can you1031 Single-family rental to Multi-family?

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