1031 Exchange to Invest in an Apartment

[Syed Z.]

Hello Fellow Investors, I am new to this community so let me introduce myself briefly before jumping into my question. I am a part time Real Estate Investor, a Real Estate Agent and a full-time IT Consultant.I have been slowly acquiring Single Family homes and Town Houses in Minnesota since 2011. 

Some background to my question: Some of the properties I own have appreciated significantly . Three of them in particular, have a combined equity of at least $285000 sitting in them. I wanted to tap into this equity to start doing BRRR to expand my portfolio or do some flips, so I went to the Major Bank that I have the mortgage through and applied for an equity line of credit on them. They rejected the application and said I have too many total mortgages (7) for them to approve a LOC on my rentals. So I went to some smaller local banks, and they told me that for them to give me a LOC on the properties I would need to refinance the properties with them first, at of course a much higher rate than what I have on them right now. One other smaller bank told me that without refinancing they would only give me a $100K LOC on my entire portfolio (the three properties with the $285K in equity plus a couple of other properties that have less equity).

So I have decided to switch gears and make the jump to apartment investing instead. Ideally I would like to do a 1031 Exchange on the three properties  mentioned above to purchase an Apartment building. My question is whether its possible to do a 1031 exchange on an Apartment building using 3 separate town homes?

If so, how would it work logistically? Do you think an apartment owner would accept a offer contingent on the sale of the 3 separate properties? Also the properties would need a little face lift before I could even sell them so the process would take more than a few months. Plus they are all occupied by tenants, so I would need to get the tenants out somehow, fix them up a bit and the sell them within a certain period of time to make this happen.

Any suggestions on how to go about doing this or how people that make the move from Single Family to Apartment building  investing accomplish this? Your experienced or educated advice would be greatly appreciated.

[Dave Foster]

@Syed Z. some great suggestions from @Bill B..  It is perfectly fine to exchange from SF to MF rentals.  The type of real estate is irrelevant.  You've rightfully identified the logistical obstacles as the issue.  Each sale is it's own 1031 exchange and has it's own unique calendars.  In order to combine three sales into one purchase you will need to bunch the sale so that they all close close enough together that the time lines overlap.  That's why Bills advise is timely.

Some other options.

1. Use contingencies on your sales so that the closings of the sales cluster naturally.

2. A reverse exchange is a special process that let's you control the new property before you close the sales of the old properties.

3. Maybe the seller would go into contract with you with a floating closing date but also with a management agreement so you have control and operate them before you purchase the entirey.

4. If the seller has no debt or a friendly lender you could simply by a % of the new property as each sale occurs.  So while you're selling your old properties you become a tenant in common with the seller and with each sale you own a larger % of the property.