Want to 1031 my SF to a multi family but need help

[Christina Kokologiannakis]

I have a SF full time rental that is a wash every month.  But nothing comes out of my pocked which is good.  It has appreciated a lot.  We are going to give notice to our tenants, fix it up and sell it. I want to do a 1031 exchange and buy a multi-family.  I want long term equity and good right now cash flow.  

I should net about $500k from my 1031 to put into my next investment.  Should I go for two small multi-units like 4-plex with $250 down on each? Or should I just go for as many doors as I can get that will cash flow with good long term appreciation? 

I am open to buy anywhere in the US.   I just don’t know if it’s bad to just go for a big building right away?  Is there a way I should be moving into multi-family? 

[Eric Van Deman]

Hi @Christina Kokologiannakis,

In moving from a single-family to multi-family properties, I would recommend that you look into the lending requirements in the multi-family space before making your decision as there might be some other actions that you would want to undertake before you sell. If your plan is to find a replacement property or two that is 4 units or less and qualifies for residential financing, then there is probably not much to do with your current investment structure. However, if you are planning to find a replacement property that is 5 units or more, you'll get into the commercial lending space. Commercial loans are more commonly granted to LLCs and one of the 1031 requirements is that the relinquished and replacement properties hold title in the same name, which may require you to transfer the SFH into an LLC before you sell it. There are also some basic requirements for a commercial loan being the borrower's net worth is higher than the loan value, DSCR typically above 1.25, and certain reserve requirements. If I were in your shoes, I'd reach out to a commercial lender and a 1031 exchange intermediary before you put your SFH on the market to ensure you'll be able to follow through on the back end. And I agree with both Bryan and Jake, the timelines are tight, so start early in searching for your replacement property.