Advise for a possible 1031 exchange!

[Kris Rudge]

Hello BP! I haven't done a deal yet but I've analyzed a handful of properties. I was working on trying to get financing for a property and was talking to a coworker about real estate. He currently owns two properties. One is his primary residence with a mortgage and the other was his old primary residence that has been vacant for about 1.5 years (100% paid off) but is still paying hoa fees. He doesn't know anything about real estate and has no interest in it. He wants to sell the house that is paid off so he can pay off his primary house. He wants to get the most for his property so i told him about a 1031 exchange. Since I'm looking at getting funding for a property could he 1031 the property that is paid off into a property ive been looking at and I'd refinance the property to get his money back out and pay him interest for the help. Any advise, help, or suggestions are greatly appreciated. In advance, thanks.

[Dave Foster]

@Kris Rudge, If your friend has been holding that property with the intent of using it as an investment and now wants to sell that house and do a 1031 exchange that is fine.  However the 1031 is a sale followed by a purchase of real estate.  So he would have to take title to the new property.  @Jon C. makes a good point about deeding.  I'm not too concerned about that as he and his wife probably file a joint tax return and would be the considered the same tax payer for 1031 purposes.

But I don't see how he could buy the property to complete his 1031 exchange and then you refinance it without you taking title.  And if you do that then he is in essence selling that to you and that would end up in a taxable event for him.