Need advice on what to do with my 1031 exchange

[Allen Yeung]

Hi all, I'm looking for some advice on what to do in my situation here. I'm currently selling my rental property (~$160K) in Largo, FL because my renter is moving out, HOA is increasing the prices and I'm out of state. I plan on executing a 1031 exchange so that I can defer capital gains tax on the sale, but now I'm left with the problem of where to invest the exchange. I've considered the following:

1. Purchase Rental Property in NJ - I currently live in Central NJ and have some rental properties here, but the prices have gone up astronomically that whatever I buy now will probably depreciate in value over the next couple years when the housing market goes back to normal. There is also very little supply and the cap rates are not great at 3-5%.  

2. Purchase a commercial property in NJ - I don't have any experience in commercial real estate, so I would lean towards something like a medical office. However the supply seems pretty saturated at the moment and not sure if the demand is there and if it's easy to rent out.

3. Rehab a property - I don't have much experience in rehabilitating a property, but again same problem of low supply.

4. Purchase a business? - I'm not even sure if this is possible with a 1031 exchange, but possibly an option.

5. Purchase rental property in another state - Not sure even where to start here sourcing properties and property management companies.

6. Invest in DST - Probably a last resort since I don't know much about it and seems more illiquid than the other options. 

[Whitney Nash]

Hello @Allen Yeung

If you want to do a 1031 exchange, scenarios 1, 2, 5 & 6 are going to be your most straight forward replacement property (RP) options. Option 3 is possible if you use exchange funds for the purchase and other funds for the repairs (otherwise an improvement exchange would be needed and those are much more complicated and expensive to execute). Then, you would still want to rent it our for a period of time; don't flip it. Option 4 can only work if the exchange funds are used to buy the real physical property that the business uses/is housed in. They cannot be used to purchase the business entity itself. Additional investment options that you may want to consider are bare land or oil & gas mineral rights. If you need further clarification or have more questions, please message me.