1031 questions

[Andre Alonzo]

I currently have 8 SFRs/condos and I would like to eventually trade them up into apartments.  Here are my questions.

I am afraid of selling my 8 SFRs/condos and not having anything identified to exchange into.  Can I first go into contract with an apartment, and then sell my SFRs/condos?

How unreasonable is it to sell multiple condos/SFRs and exchange into 1 apartment?  Have any of you done it?

[Dave Foster]

@Andre Alonzo, The only limitation statutorially on you is that you must close your sale before you close your purchase.  So to mitigate risk you could...

1. contract for purchase prior to closing your sale.

2. Contract for purchase with a contingency to accommodate your selling needs.

3. Contract with an extended closing/due diligence period.

4. Secure a lease with an option that you can exercise after you close your sale.

5. Do a reverse 1031 exchange where your QI forms a holding entity that takes title to your replacement and holds it until your other properties sell.

6. Sell all 8 to one investor and treat it as one exchange (yes, all the investors reading this are already licking their chops at the discount they would offer for the package as a whole but it's a thought)  :)

The other big issue you'll have is coordinating your sales to accommodate the necessary timelines if you are wanting to combine them.  From the date of your first sale you have 45 days to identify your potential replacement.  If you are wanting to sell 8 and purchase one then you're going to have to make sure that you can close on all 8 during the 180 day period from the first sale and that you've got that one property identified on all 8 exchanges.

I would not recommend transferring into an alternative entity within a year of selling.  It is far too easy to create the perception of intent as resale which would blow your exchange up.  The tax payer for the old property must be the same as the tax payer for the new property.  If you want to change entities it is best to do that after the 1031 is complete rather than ahead of the 1031.