1031 Exchange selling investment

[Trevor Seely]

Looking into selling a rental property to use the equity built up buy another rental property and addition to that buy a property to house hack to get me out of renting situation. I believe from what I have seen that the 1031 wouldn't apply to the house hack as it is primary residence. As a 1031 exchange goes the property that I do purchase has to be equal or greater value correct? Can I buy multiple properties in 1031 from selling just the one?

Thanks

[Dave Foster]

@Trevor Seely, There's a very neat way to handle this for you.  First of all you're talking about a diversification exchange.  You sell one property and use your proceeds to buy more than one replacement.  That's a perfect use of the 1031 exchange.

One of your purchases could be a multi family of some sort (4 units or less).  Where you will live in one of the units and rent the other.  Duplexes are perfect for this.  This too is perfectly fine with the 1031.

As long as you meet the valuation requirements!!!  If you want to defer all tax you must purchase at least as much as you sell.  And you must use all of the proceeds from the sale in your next purchase.  But you can allocate those proceeds any way you want.  

So you might sell a singe family for $400K with a $200K mortgage. That means you need to purchase at least $400K of real estate using all $200K of cash. So you purchase one rental for $150K cash. Then you use the other $50K as a 10% downpayment on an FHA or conventional loan. You can only count the unit you'll be using as investment for the 1031 exchange. But you can do whatever you want with the other one.

So you rent on and move into the other unit of the duplex.  You completed a 1031 exchange and own no tax.  You have one rental free and clear.  You have a duplex that is half rented and you get to live i half.  Because the half of the duplex you're renting ($250K) plus the free and clear rental ($150K) meet your $400K reinvestment target.

This thing is wired for you!!