1031 Exchange and Coops

We did a 1031 and bought a co-op but did not rent to a family member.

As long as the co-op allows immediate subletting and parents buying for children, the buying part should be fine. It's not that easy to find one that meets those requirements, but there are some out there.

There might be an issue with the IRS about renting to a relative in this situation, though. It might not be considered a true investment property. You should read the relevant parts of the tax code carefully, or consult with a good accountant.

FWIW, not exactly your question, but...While many coops don't like to sell to parents who have their kids live there, some cases may be viewed differently by the board. The basic concern is that coops like residents to "have some skin in the game." People who own a property take better care of it and behave better--so the logic goes. If a kid has parties, invites drug dealers over, leaves laundry in the washing machines for days before reclaiming it, has countless friends crash at the apartment, the coop is in a hard position to begin rectifying the situation with the parents. No one wants to spend their time dealing with problems from someone else's kid. A family member living in an apartment alone also does not qualify as "owner-occupied" I believe and coops tend to be very uptight about that. Banks usually require 80% owner-occupancy before they'll extend a loan to a buyer so buildings don't want the sublet numbers to get very big.

That all said, though, adult children with real jobs and conservative lifestyles (in the board's view), may allay some of these fears and get the board to approve the situation. For example, a physician participating in a residency or specialization program; a lawyer studying for an LLM; maybe a mature, boring-seeming library sciences masters degree student. If interested in a property, have your broker inquire on this issue right up front and be sure the broker has all the info to make your case. Some boards are very forthcoming about whether they would even consider such an application.

Be careful. Coop shares may not be like-in-kind property like a condo; check the revenue rulings carefully. Imigin

Thanks everyone! Very helpful!