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In regards to 1031 exchange, you can apply this law to any property as long as you exchange one property for the same property, whether it is an investment or a primary residence. The rule is: "like property for the like property" as an investor myself, I personally have done Eight 1031 exchanges in the last 12 years.
We have many homes available for sale at reduced prices I am sure you would be able to fine a replacement property that would fit your needs. If you would like to contact me direct with more information I would be happy to help you.
I've seen a number of questions on exchanging but, frankly, haven't heard any success stories. And, really, that's not surprising. Consider: You have two homes in San Diego. First, how many people in San Diego would be interested in buying one of those homes? Each has their own criteria about number of bedrooms, number of bathrooms, maybe school district, maybe house style, and so on. Each also has a price figure in mind. If you home were priced properly and heavily marketed in San Diego, how long would it take to find one qualified purchaser who wanted your home? 60 days? 90 days? 120 days?
But now, consider: You're not trying to find a buyer in San Diego for your home. You're trying to find a buyer in Carson City, Nevada. Someone who has the same criteria regarding bedrooms, bathrooms, location, and price. I'll bet there aren't too many in Carson City. And if it would take you, let's say, 60 days of good marketing in San Diego to find someone interested in your San Diego property, how long will it take to find someone in Carson City?
Meanwhile, you need to find a suitable home in Carson City. I'm sure you've got some criteria, too, regarding number of bedrooms, number of baths, general location, and so on. So even if you found someone in Carson City interested in your San Diego property, you might well not be interested in their Carson City property.
But let's say you beat the odds and you find an acceptable home in Carson City, and those folks consider your home in San Diego acceptable. You're talking about an exchange. Fair enough. But what happens if there's a substantial difference in equity? For instance, your home in San Diego is worth $600,000, with $400,000 in equity. The home in Carson City is worth $600,000, with $100,000 in equity. If you exchange homes, you'll immediately lose $300,000 in equity. Ouch!
Meanwhile--and recognize I'm not a lawyer or an accountant--if the two of you simply exchange the properties (you deed your property to the Carson City folks, and they deed their property to you), if the mortgages remain in place both of you have just violated the lenders' due on sale clauses.
In brief, the likelihood of achieving a successful exchange seems pretty remote.
Look: If you aren't in a position to sell your San Diego properties, then you can't. But recognize that renting a home is not "wasting our money." You need a place to live. And rent provides that.
If you want to buy a property (or assume an interest in a property) in Carson City, there are plenty of ways to do that. You can lease-option a property. Or do a contract for deed. Or there's a nice technique using land trusts. Or acquire a property "subject to" (subject to the existing financing). None of these require new loans up front. At some point in the future you'd refinance/finance the property. But in the meantime you'd control the property and be building up equity.
Hope that helps.