I frequently get asked how many properties one can sell, or for that matter replace (purchase), when doing a Section 1031 tax deferred exchange. You are going to love this answer--the investor can sell (relinquish) ANY number of properties and then purchase (replace) a smaller number of properties.
Many investors take this path because it generally leads to the reduction of management headaches. Alternatively, that same investor can diversify their holdings by selling one or more properties and purchase numerous properties. I have seen many investors purchase a number of properties as their replacement because they wish to spread their risk over a lot properties.
Another neat idea for the investor is to spread their risk over several different states or geographic regions by utilizing ยง1031. This can be accomplished by replacing (purchasing) properties in different geographic areas, thus avoiding holding all of their properties in areas that have substantially appreciated and where prices have reached their peak.
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