Seller financing to avoid taxes...until refinanced?

[Mike Meisner]

Hi everyone, longtime lurker but first time poster.

I have a lead on a great value add storage facility. 130 units, 40 containers, RV spots, a house to rent, and a warehouse bay...plus extra space to expand. 
Original owner, wants to retire. He's 99% filled and has NEVER raised rent. Seems like you could almost double the NOI with the right plan.

But he doesn't want to pay taxes on the sale....so seller financing might be attractive. But when the time comes for me to refinance in a few years he will get hit with a bill - which is obviously the whole reason seller financing would appeal to him in the first place. 

My question is this: can he 1031 back into the purchase at the time of refinancing (as an LP) and then collect dividends at that point? Or is there some other way to creatively structure this?

[Dave Foster]

@Mike Meisner, Once he sells and accepts the note he will have to pay the tax. No opportunity to defer again. A DST is a passive cash flow generator. He could 1031 into some of those. But that could cause issues with the owner carry.

There is a way for him to both do a 1031 exchange and turn the note into a tax free note.  But he would need to have a source of cash to replace the note in his exchange account for cash.  then he can complete his 1031 and buy any replacement real estate he wants.  All the tax deferred in the 1031.  And at the end of the process he has the note outside the 1031 collecting cash until you pay it off.  Since he swapped cash for it there is no longer any tax in the note other than interest coming in.  So he is not hurt at all when you refinance a couple years later.