What is a 1031? Is that cash? Can I still get paid?

Question

I have a multi family unit and i asked for cash buyers. Well someone said they have a 1031 and can send proof of funds. What is a 1031?

Can I still get paid cash? How does this transaction work? Anyone can shed light on this? I’m new. I only know cash.

Aaron H. · Answer

If you search the forums, you'll find lots of info on 1031 exchanges. To radically simplify, it means they're selling another property with the intention of moving their proceeds from that sale into purchasing your property. They'll have a variety of restrictions on timeline and how the money has to be moved. But from your perspective, you'll still get paid at closing, same as any other purchase. You'll just have to make sure you can work around their timeline.

Dave Foster · Answer

@Tenisha Walker, As @Aaron H. said it really doesn't affect you other than the fact that they can prove that they have sold the property they are exchanging and have cash sitting in an exchange account ready to purchase yours. That's a very good buyer for you!!!

But here's what's important for you to know if you haven't heard of a 1031 before. A 1031 exchange allows you to sell an investment property and by going through some steps purchase new investment property and you get to defer indefinitely all tax on gain and depreciation recapture. So if you're looking to sell your MF and continue buying real estate this is something you should also seriously consider on your sale.

As Aaron said there are few rules. The most important is that you have to us a qualified intermediary to handle the 1031 documentation. And they have to be in place prior to the closing of your sale. There's all kinds of good info available. I'll PM you with some resources as well.

But the takeaway for you here is two fold - First this buyer is very well qualified. And second you ought to look at doing your own 1031 on the sale.

Tenisha Walker · Answer

@Dave Foster

Thank you Dave sounds good. This puts a lot into perspective.

Tenisha Walker · Answer

@Aaron H. Thanks that helps.

Tenisha Walker · Answer

@Aaron H.

Okay perfect.

What is a 1031? Is that cash? Can I still get paid?

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