How many properties should you get before doing a 1031 exchange

[Charles Bruce]

How many properties should i obtain before i start doin 1031 exchanges

[Dave Foster]

Interesting question @Charles Bruce.  It's the kind of question where the answer could be "orange" or "Albuquerque".

Instead of looking at a numbers game kind of goal, the 1031 is best used situation by situation.  Each property you purchase has a shelf life and utility to your portfolio.  Those properties that still add utility you keep.   Those that either don't add value to you or have maximized what you perceive to be their value you sell.  And that's when you do a 1031.  So you could be doing 1031 exchanges with your first property.  Or you may own 100 and still not feel like doing a 1031 because you have the perfect properties.

If you want to use the tax deferral of the 1031 exchange heres the situations where they work the best.

1. Growing your portfolio - You sell one property and 1031 into two or more properties.  This is called a diversification exchange.  Double the growth potential

2. Shrinking your portfolio - Sell two or more properties and 1031 all of them into one larger property.  This is called a consolidation exchange.  Economies of scale and lessening work load with a larger asset.

3. Moving Geography.  Sell a property in a market that is more appreciation oriented and 1031 into a more cash flow oriented market.

5. Changing asset class - Sell residential and buy commercial.  Sell Single Family and buy Multi family.  Sell commercial and buy raw land.  

So rather than a critical mass of properties look to each of your properties.  Are there reasons to sell it - thats the time to do a 1031 exchange.