Putting down as little as possible towards Apartment

[Ayodeji Kuponiyi]

Good day BP Nation! I'm closing on my SFR this Friday that I'm selling and under contract on duplex that I'm selling and closing middle of next month. With the expected cash coming my way, I want to transition to apartments. How do I go about with putting down as little as possible in regards to down payment? Instead of using 20%-25% down payment, I want to put 5%-10%. Any thoughts or strategies? Thanks in advance!

[Dave Foster]

@Ayodeji Kuponiyi, I understand  your goal to use as little of your cash for the down payment for the apt purchase.  One way to accomplish that would be to use the tax that you would normally have to pay on the gain by doing a 1031 exchange as @Seth Williams and @Upen Patel suggested.  By structuring the sale as a 1031 you get to use the tax in the next purchase and your actions are still simply selling the old property and buying your new property within some specific guidelines.  That lessens the cash out of your pocket and simply directs the tax into the down payment instead of to the government.

A 1031 is simply a process that has to start with a qualified intermediary being involved prior to the closing of the sale.  So there is some time urgency for you if you want to explore it.

@Seth Williams, you're right the 1031 cannot be used to purchase a primary residence. But I didn't see mention of that in his original post. However, if he wanted to sell a sfr and use the proceeds to buy a duplex and live in half of it he could still do it as long as the valuations work out. The rule is that he must buy at least as much investment property as he sold. So if he sold a SFR for $150k and wanted to buy a $300K duplex to live in half that would be fine since he is sold $150K of investment property and is buying $150K of investment property (the other $150K is primary residence). An oldy but a goody house hacking tactic.