1031 Of Motel
I have owned a small Motel on a Florida Beach for the past 15 years. I would like to demolish the Motel and build about 20 condominiums. I would then like to use 1031 exchanges to sell the properties and get new real estate. Is this possible? I have been told yes and no. Thanks.
As a developer, your condominiums are dealer realty and not eligible to participate in a 1031 exchange.
Sometimes you can sell the dream and accompanying plans. You then use the 1031 and all is well. You are still in like for like and the government smiles upon you. Besides the development you contemplate is a rather large enterprise and something like that would be better structured within the framework of a Corporation.
Cheers, Lucius
You might be able to accomplish what it sound you wish to but with a couple of added steps. As in every RE Transaction, the devil is in the details.
Suppose you create plans and gain appropriate approvals. You then have a potentially marketable package.
Sell that packaged plan to a developer (maybe even your own seperate corporate venture) with detailed exchange terms. Without earning a fee, I can't cover all the steps and details but seems as you could sell the whole package subject to developing a simultaneous exchange. The find and buy subject to placement in the multiproperty exchange. Organizing the transaction with cash funding at sale of each condo seems much more difficult and would require more legal creative thinking than a forum suggests.
Good Luck and Good Sales! All those complexities are why I'm changing directions.
[addsig]
No one ever said GatorBoy couldn't use the motel as the relinquished property in a 1031 exchange. Now a development plan may attract a buyer, but GatorBoy is still selling the motel in any exchange he may enter at this point.
If he proceeds to develop the property himself, enhancing the property value tremendously, he cannot then use the newly completed condo complex as the relinquished property in a structured exchange. At this point, the property was not in service for a qualified investment use, and therefore it is not eligible to participate in an exchange.
Now, if GatorBoy develops the site for his own investment use, puts the condos in service as rentals for a year or two, then gradually sells individual condos over time as leases expire, he could make a case for using a 1031 exchange for each condo sale.