Best way to invest with the 1031 exchange

[Zach Burns]

This is my first post on here, any advice is awesome! Heres my question, my parents are about to sell a lot and they should profit around $550,000 from it, we want to do the 1031 exchange. What do some of you recomend would be the best way to reinvest that money, multi-family property or commercial? I know it would be really hard to buy single family homes with doing the 1031 exchange. Also we are in Nashville, Tennessee is that makes any difference. Thanks!

[Dave Foster]

@Zach Burns there in lies the rub.  The 1031 exchange almost gives you too much flexibility.  You and your folks need to have some focused discussions around a bunch of topics because the skies the limit on what you can do at this point.

1. Geography - The 1031 allows you to invest anywhere in the US (and a couple of US territories).  So if your current property is in TN but you feel like that market is overheated you can move that money into an investment anywhere else where you feel like.  Maybe you want to trade snow for sand or vice versa.

2. Type - If you're investment is residential you can move it into industrial, commercial, raw land, etc.  Go from sf to mf or into vacation rental  Again the type of real estate is not a problem.

3. Return - this follows somewhat the type issue but is more focused on what sector of real estate is going to provide the type of returns you desire.

4. Management.  This is going to hinge a lot on where your family is on the wealth transfer continuum.  If your folks are slowing down they may want a more passive type of investment.  However if they're turning to you to take over you may want to investment in something or things that need some very active management and involvement.

Sit your folks down and buy them a really nice dinner and do some dreaming apart from real estate.  What does the perfect world look like to them right now.  I'll be there's a way a 1031 can be used to get them there without paying tax.