All Forum Posts by: Chris Mitch

Hi everyone,

I have a question regarding structuring proceeds from a 1031 exchange into a TIC for a specific property. I included some background below:

Sold a property for $950k that resulted in $600k in 1031 exchange proceeds. Identified 3 properties as part of the 1031 exchange within the 45 day window.

Purchased property #1 in March for $1.5mm and used $250k of 1031 proceeds (this satisfied the replacement property being equal or greater than the relinquished property) .

Scheduled to close on property #2 in July for $1mm using $150k of 1031 funds (this will be within the 180 day period).

The question is around property #3, which was identified within the 45 day window. The property is being purchased by a friend for $3mm, financed 65% debt, 35% equity. He will put down some of the equity, but plans to have 10-15 investors for the remaining balance of the equity (none of them are using 1031 funds, other than myself). Could I use $105k from 1031 exchange funds balance to do TIC as part of the broader syndication? The investment would equate to around 10% ownership in the asset. Are there any structuring headwinds that we need to be aware of?

Thank you.

Hi @Dave Foster two more quick questions.

1. Is there a certain time period we must hold a property purchased with 1031 funds? I know 1031 can't really be used for flips, but wasn't sure if there's a set rule.
2. If we buy a total of 3 properties with 1031 funds, and out of the 3 we decide to sell 1 within 3-6 months of purchase due to changes in market conditions or a shift in portfolio, but we hold the other 2 properties purchased with 1031 funds long-term, does the sale invalidate the 1031 exchange for the property sold, all three, or the 1031 is still valid since 2 properties are being held long-term?

Hi Dave, what if all of the 1031 funds we intend to use will be used towards the lot purchase and close within 180 days? Could we then have improvements on the lot (essentially finish the build) using bank financing and close outside of the 180 day period?

Hi @Dave Foster one quick follow up question to answer #2 above. What do you mean by "Once you close on the lot you cannot later count improvements on a property you own for the 1031"? 

In the land purchase example, if we close on the land and pay $150k for it, all from 1031 exchange funds, can we later have another closing for the build once we get CO?

Hi @Dave Foster, thanks so much for the quick reply. The answers are great btw. Are there any other structuring options we may not be thinking about on the new construction property? 

1. We'll check with the lender and attorney if we decide to go this route.

2. This is a good idea, I will check if the lender is willing to close on the loan without a CO. I know the chances are slim, but perhaps we could offer up some collateral as a guarantee until we get CO, which should be 2-3 months after closing.

Hi everyone, this is my first post on Bigger Pockets, but have been a reader for a long time.

I have a few questions on how to best structure a 1031 and was wondering if any of the great minds from this forum may have some ideas for us. It's a long post, so really appreciate everyone taking the time to read and comment. Thank you.

Some background on the situation:

My partner and I each own 50% of the Holding Company LLC, which owns 100% of Sub LLC

Sub LLC sold property for $590k gain, 100% of the proceeds went to QI

We have identified 3 potential replacement properties:

1. First replacement property: purchase price $1.525mm, we'd like to use $229k from 1031 exchange, finance the remaining portion (85% LTV)
1. Can we purchase the property under my name (and not Sub LLC), use $229k 1031 funds as downpayment and transfer the title at closing into Sub LLC? The tax payer will remain Sub LLC as we plan to do a debt assumption agreement post closing, where Sub LLC will assume the debt for the property. In this case the borrower will technically be different than the 1031 entity, Sub LLC, however, the tax payer will remain Sub LLC.
   
2. Second replacement property: purchase price $1mm, we'd like to use $150k from 1031 exchange, finance the remaining portion (85% LTV)
1. The property is new construction that may not have CO by the time our 180 day exchange period ends. Are there any creative ways we can still use 1031 money for the transaction? We'd like to use $150k towards this purchase.
1. Could we purchase the land lot using $150k, close on it within the 180 day window and later close on the house once property is complete and we have CO using bank financing for the remaining portion of the purchase price?
2. Alternatively, could we use a construction loan with one closing in order to use the 1031 funds?
   
3. Third replacement property: purchase price $250k in cash, $211k coming from 1031 exchange and $39k new cash equity coming from us. Do we need a TIC agreement given we are mixing funds?
   
4. Separate question, if we were to purchase a furniture package from the seller by purchasing one of the properties fully furnished, will that have an impact on 1031 and how funds are used if the entire downpayment of 15% is coming form 1031 funds?