How/where to deploy leftover 1031 funds

[Brandon Beaudoin]

Evening folks!

Hi BP! 

My wife and I have some leftover 1031 funds that we're looking to deploy into another investment here soon to stay in line with the IRS timelines. We've used about 2/3 of it purchasing another cabin in TN but our DTI is bogging us down to a dollar amount that doesn't really put us in a great position for another property (pre-approved for $300k). DTI has been impacted as we've purchased 3 properties in the last 12 months despite having a pretty good paying W-2 and qualifying income from our investment properties. 2022 would be fine once we file our 2021 taxes but we don't have the luxury of waiting due to 1031 timelines.

That said, we do have the opportunity to get in on an apartment syndication and overall the projections appear to be pretty good along with the business plan/strategy. Our QI still holds the remaining funds but we're considering deploying them to get in on this syndication where we can conservatively see annual cash on cash returns of ~8% for the next 3-5 years, a projected conservative return north of 80% and IRR of about ~15%. The first year cost seg looks like it'll mitigate our capital gains taxes so forgoing another purchase through 1031 would mostly be offset by the MF cost seg (payout of maybe $1k on $50k investment of 1031 funds).

My questions to the brain trust are:

1.  What are we looking at from a tax hit when we exit this syndication?

2.  Are we able to 1031 those funds on sale of the MF property if investing as an individual?

3. What other options exist to deploy these remaining 1031 funds while backed up against DTI limits? Commercial loan? Others?

4.  What are we missing or should we be concerned about?

Thanks much,

B

[Dave Foster]

@Brandon Beaudoin, Given that I've got some inside info for you on that 1031 :)... Your 45th day has not transpired yet. So you can be strategic about this.  

1. A syndication probably isn't going to work to finish your 1031 because you cant 1031 into a membership interest in an entity.  It has to be real estate itself.  But that being said, if you only name your one replacement on your 45 day list.  Your exchange will die after day 45 and the purchase of your one replacement.  You get the rest of your proceeds back - and they're taxable.  But you can use them immediately to invest in the syndication.

2. Depending on what you have left there are only a couple more options - an opportunity zone or fund. Or a DST would fit the bill. Both of those could be done without lending issues.

3. But if you feel adventurous and want to roll the dice with a new construction and your lendability.  You could also contract on a property that won't be done until next year but can be put on your 45 day list.  File your tax return early so you can qualify.  And then pray that the builder can meet your 180th day deadline.