A Few 1031 Questions

[Craig Fitzsimmons]

Can someone please remind me...

I can use 1031 proceeds from one property to acquire 3 new properties?

Can any of those new properties have a purchase price less than the property of which the proceeds are from?

For example, I sold a $150,000 duplex, and looking to acquire 3 new properties, two of which are $100,000 and one that is $165,000.

Any issues here?

Thanks in advance!!!

[Dave Foster]

@Craig Fitzsimmons, What your looking at doing is a "diversification exchange" - selling one and buying more than one.  It's a very powerful application of 1031.  

What is important to the IRS is that you purchase at least as much as your net sale in total and use all of the proceeds. Each property does not have to equal or exceed the sales price by itself. This is part of what makes the process so powerful. You're selling a more expensive property that maybe generates less ROI and buying several smaller properties that each have a greater ROI or rent/ sq ft.

The other thing that makes this so advantageous to you is that you can allocate the proceeds in any way you want.  Either as minimum down payments.  Or you could buy one for cash and finance the others for maximum leverage.  This way you've got a property "in the bank" out of risk.  But you're still getting the boost from some leverage.   And you've consolidated your cash so if you ever want to refi you'll have access to more cash.

The. fly in the ointment is that while the IRS does not restrict how many replacements you buy.  They do put limits on how many and how you identify them.  As long as you're looking at three or fewer you're fine no matter what.

Great plan!