1031 Eligibility

[Kevin D.]

I bought a foreclosure SFH with the intention on BRRR'ing it. It's renovated now and I turned it over to my property manager 6 weeks ago, but he hasn't gotten it rented yet. I have since then found a 3 unit that I really like. Does anyone know if I can 1031 exchange the first SFH and roll it in to the multi? I was doing some reading about 1031's and it seems to be "like type properties". Both are investment properties that were/will be intended to be rentals...

[Dave Foster]

@Kevin D., your potential issue isn't going to be with property type at all.  Any real estate held for productive use in business trade or for investment is like kind for any other.  

Your issue is going to be that you have not held the current property very long.   While there is no statutory holding period required to qualify for 1031 treatment there is a distinction between buying property as inventory with the intent to resell it (this does not qualify) and buying property with the intent to hold for productive use (this does qualify).  

Time held is not a requirement but time held is a strong indicator to demonstrate your intent.

Looking at the particulars the way you state them there are some positive indicators that indicate your intent to hold - 

1. Your stated intent,

2. The listing for rent

3. The seeming lack of potential rentors

4. Another long term hold property that meets your investment criteria better.

The negative indicator is that you've only owned it a short time.  What you've got to decide is if you can satisfactorily demonstrate your intent to hold if questioned.  Conventional practice and counsel has ranged from whatever to two years.  Nothing is certain.  Get good counsel, chart a course and be true to what your intent was.  

Don't do something just because you can.  And don't not do something because of fear. Do what is right and then defend if necessary.