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Using the 1031 Like Kind Exchange to Invest in Multifamily Properties

Section 1031 of the Internal Revenue Code provides a tax-deferral strategy

Exchange real property for like-kind real estate

Use all proceeds from sale of property for the purchase of replacement property

Like-kind real estate includes business/investment real property (not primary residence)

Section 1031 does not apply to the exchange of stocks or bonds.

The Chicago Multifamily Investments team will work with the buyer and seller to ensure the process is seamless.


We typically begin working with a seller to identify target replacement property criteria including location, property size, expected returns and management intensity prior to listing their asset for sale.

One of the factors we often consider is the motivation to sell the asset to begin with. Property owners sell for a variety of reasons. One common reason is to spend less time managing a particular assets multifamily assets in their portfolio and more time doing the things that really matter like time with family and loved ones.

In these instances we may sell a higher management intensive multifamily asset and help the investor identify an asset in a different part of town or even another state. Sometimes investors are looking to acquire an asset to replace the cashflow however, want little to no landlord responsibility. This may mean trading out of a multifamily into a whole different asset class like looking a retail property etcetera. We recently help an investor sell a 24 unit apartment building and acquire a property with that had a 10 year lease with DaVita Dialysis as the tenant. The new acquisition happened to be in the same city as their vacation home. All the options are on the table when you have a team with the reach of KW Commercial with over 600 commercial market centers throughout the states.

Regardless of the motivation the 1031 exchange process is the same. Our team will begin presenting the investor with various options of assets to consider. We have in our inventory over 24 classes of investment properties including hotels, seniors housing, retail, office, medical officer, self-storage, industrial, student housing as well as market rate and affordable multifamily.

The investor has 180 days from the time of closing to complete the exchange.

From the day of the closing the investors has a 45 day period to identify up to three replacement properties and close on either one or a combination of the three prior to the expiration of the 180 days.

Our team will discuss different investment options including the Delaware Statutory Trust (DST) option. We usually advise you use this option as one of your three replacements as a backup or bridge to pick up any unused funds etcetera. Present you with deal flow and connect you with the right team.

The DST is an investment vehicle whereby an investor can invest with other investors such an institution and purchase an asset or portfolio that may have been out of reach because of the price otherwise. Some DST exchange options our team has assisted with include the purchase of a Whole foods, another was a portfolio of Walmart’s located in various states around the Midwest.

Chicago Multifamily Investment team at KW Commercial will coordinate all the activities between our multifamily investor clients and the qualified intermediary: Qualified Intermediary is a company that facilitates Section 1031 exchanges

1) Begin the process by entering into an agreement with the investor;

2) Prepare the necessary exchange documentation to transfer relinquished property to the new buyer and transfer replacement property to the investor

3) Controls exchange proceeds from the sale of the relinquished property to avoid capital gain trigger

4) Monitors the 1031 exchange identification and replacement timelines

5) Coordinates details with closing agents and completes the property identification

Multifamily Investment Advisors at KW Commercial a leader in 1031 Like Kind Exchange execution.

Exchanging properties for the exact dollar amount is a challenge

Boot is the money or fair market value of other property received by the investor in an exchange

Capital gains taxes will be due on boot

A common strategy to avoid taxable gains on boot is to identify 3 replacement properties: “3 Property Rule”

The Multifamily Investment Advisors team present options to help clients understand maneuver the Taxable Gains on Boot.