Using 1031 Exchange Funds to add an ADU to a property

[Ian Cruz]

Investment Info:

Large multi-family (5+ units) commercial investment investment.

Purchase price: $2,400,000

Sold a single-family home and did a 1031-exchange into a 5-unit building at a cheaper price. I used the excess funds to add an ADU via a build-to-suit exchange. The improvements needed to be completed within the 180 day timeline, so I did a pre-fab ADU.

How did you add value to the deal?

Adding an ADU

Lessons learned? Challenges?

Improvement changes are difficult. I noticed the market was shifting, so didn't run to get under contract until day 43 of the identification period. However, that made getting the ADU done within 180 days of the ORIGINAL sale of the relinquished property difficult. Also had to replace fuse panels to make it work - going back and forth with the city was dificult.

[Gordon Cuffe]

@Akbar Umar I am in Sacramento county also. You should check with your 1031 provider quickly. I am pretty sure you can not do a 1031 and use the proceeds to do anything to a primary residence. A 1031 exchange is for selling an investment property then buying another investment property.