The Power of Exchanging Into Multiple Properties

Selling just one relinquished property and buying just one replacement property is typically what is thought of when contemplating an IRC Section 1031 real estate exchange. Most tax advisors are aware on some level that multiple relinquished or replacement properties can be sold or purchased through an exchange. Investors are typically less aware of this fact.

Why don’t we see a greater number of exchanges involving more than just two properties? Most likely the reason why advisors and investors do not utilize the ability to sell or purchase multiple properties is because they are thinking solely in linear terms – sell one property and buy one property. Most people have enough on their plate with one relinquished property and one replacement property. However, a powerful investment tool emerges when using exchanges with three or more properties involved.

Selling a relinquished property for $500,000 and then buying a replacement property for $500,000 or more is the typical way we think about exchanges. If we move beyond this “one-to-one” idea, we realize that we can take advantage of multiple types of market opportunities. For example, you may be an investor who has a number of smaller rental units each worth $100,000. They have been good investments, but now you have an opportunity to buy a larger commercial mixed-use property. It’s a good deal, but how do you fund it? Simple – sell a few of your rentals. Some investors will choose to bundle the properties for sale, while others will sell them one at a time.

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