1031 Multiple Lots into 1 or more Multi Family Property/ies

[Richard Benjamin Wilhite]

I’m about to list several vacant lots of land for sale. I hope to net around $800k after fees and closing costs. I want to do a 1031 exchange with the proceeds into one or more MF properties.

Assuming that I could get a property/properties at around $100k per unit, should I try to buy a single property of around 30-35 units? (With 25% down). Or should I buy several smaller properties? Or even 8 quads?

My current portfolio consists of 8 units, a fourplex, a duplex and two SFHs, in 3 different states. Some are self-managed, some are not. I hope to turn the self-managed properties over to a PM at some point in the first quarter of 2025.

I’d prefer to buy as large of a MF property as possible because of economies of scale and having to complete less transactions, but I haven’t closed or underwritten a deal that large before. So this is a concern I have.

Also, I’m unsure of the timing of the sale of my vacant lots and the gap of time in between closing. There will probably be 9 lots in total. So given the time constraints of a 1031 exchange, I thought I might have to buy several properties with the proceeds since there could possibly large gaps between the multiple closings.

I’m interested in hearing your thoughts and opinions. What else should I be working on in the meantime prior to listing the lots for sale to get ready for this sort of transaction?

[Dave Foster]

@Richard Benjamin Wilhite, @Bill B.makes some good points about loan terms and the strict identification rules for a 1031 exchange.

I would add from a tax mitigation perspective that buying the largest property possible will give you the greatest amount of cost segregation possibility and at the lowest cost since it would be one study rather than several.  This can help you greatly with the additional depreciation.

Ultimately, med to large MF and small 2-4s are totally different products.  So think about what's comfortable for you.