Seller Finance a House Bought with 1031 Exchange Money?

[Wendy Peterson]

Any thoughts on how it might be possible to purchase an investment property from someone via seller financing who bought the property with 1031 exchange money? 

[Dave Foster]

@Wendy Peterson, Well, you know that if the seller did a 1031 to purchase the property they are selling to you that there is probably a substantial amount of gain and tax to be paid if they don't take steps.

Seller financing will trigger the gain and tax.  But it will spread out the tax over the life of the loan.  So that could be a benefit to the seller.

If the seller is wanting to do another 1031 then they will have to do some specific things to accomplish both the 1031 and owner carry.

The note, as a proceed of the sale has to go into their 1031 exchange account.  And sometime before their purchase they have to replace that note with cash from anywhere else.  This puts enough cash into the 1031 account that they can complete their purchase.  After that the note is now outside the exchange and is tax free except for the interest that is paid.