1031 Exchange: Residential to Multi-Family

[John Rhodes]

Has anyone purchased a single-family home with the intent of exchanging it into a multi-family property to avoid the higher down payment on the multifamily? 

How did this work? How do you research the market for 1031 exchanges within your area? 

[Dave Foster]

@John Rhodes, It's done all the time and can be a great way to get your foot in the door and ratchet up your portfolio - a perfect 1031 application.  But don't think of the 1031 exchange as the driver.  Any kind of investment real estate can be exchanged for any other kind of investment real estate.  So focus on purchasing the best SF investment property you can find.  Use if for investment for a year or so and then sell it and find the best MF property you can find.  The 1031 will fit into any property . you choose.  So focus on the performance of the properties.

You do have to use a qualified intermediary to document the exchange and hold the proceeds.  But they will work with the transactions of any properties you and your real estate professionals select.  There are some timing and valuation regulations that they will guide you through.  But again it's secondary to finding the right properties.  The 1031 starts with your sale and ends with the purchase of the new property.

Buying and selling the best real estate is where you make the money.  The 1031 exchange is the process that lets you keep more of the money (the deferred taxes) working for you rather than paying the tax.