Help with 1031 Exchange, Trusts and Commercial Properties

4 Replies

Hi BP

1031 EXCHANGE 

@Bill Exeter I have have read most of your posts about 1031 exchange. I think I finally have a grasp of 1031 exchange. We are working with a QI, we just executed the agreement on my BOSTON condo. However, the people I am working with in real life aren't as giving with knowledge as BP or patient with us!

I understand that we need to trade up in value now to avoid a mortgage boot. Also that we will no longer have the TAX exempt Free on the back side as of 2008.

My first property is a Boston condo Rental, we bought for 479K, we are selling it for 855K. We owe 300K. For simplicity we NO LONGER QUALIFY for tax exempt.

Originally we thought that we only had to re-invest the 550K (855K-300K) so we were looking at replacement condos in NY/NJ. However it turns out we need to reinvest 855K (Long story short). In NY/NJ our return will be 4-5% for a 855K investment ;(

I will get to the replacement commercial property on questions for @Joel Owens .

TRUST/COMMERCIAL PROPERTY

@Bill Exeter My Boston Property is held under a NOMINEE TRUST in MA with my husband and I as beneficiary.  Since we are looking for reinvest with at least a safe 10% return, we are looking at a COMMERCIAL BUILDING/COMPLEX in Pittsburgh where we are now.

QUESTION: 

Do we have to buy said commercial unit via our MA Nominee Trust?

Can we set up a New Trust in PA to buy said Building and still qualify for 1031?

Since it is a commercial of 6-10 units, I rather it be in a LLC, can we buy under and LLC owned buy New PA Trust?

Also if we buy this commercial unit, we will never really "live in it" so we either buy/hold long term Or Rollover and exchange for more equity in the future. How/When is this CAPITAL GAIN ever paid back in the FUTURE?  Is it when we or our kids does a straight sale in the future. and how is that tax calculated then.

@Joel Owens

 Joel, The replacement property that we are looking at is listed at $1M.  It's at 50% vacancy. It's in Grade A location, off Main Drag. I haven't been in the bldg, going tomorrow. I think it's 6-9 units. it has 9 electrical meters, but only 6 are metered/on) and it only has 6 gas meters.  it has 43 parking, I will due the usual due diligence to make sure my numbers are right.

QUESTION:

Is It safe to have a TRUST hold a commercial property? We need liability shelter, hubby is a physician.

IF it is safe, what kind of Trust? I would prefer an LLC. I would hope Bill says we can do the LLC owned by Trust.

Sorry, I ran out of time, but these are my major questions.  

Thanks in Advance

Going from owning a condo to owning a commercial building is a big jump. The key will be how does buying this new building affect your time transacting as an agent for residential.

DEMANDS ON TIME.

If I average thousands an hour return on my time I either have to cut out those tasks that pay less or employ others to do those tasks for me if they are essential but not optimal for me to do.

If it has 50% vacancy the lender will want full recourse against you and your husband. That would be non-optimal. You would essentially be taking a large amount to 1031 into a value add type deal and put the capital at risk if it didn't work out.

Might want to look at a strip center or possibly single NNN with a national tenant if security of the income stream and no demands on time with non-recourse is wanted.

  

@Joel Owens

good point about the mortgage ;)

we own other commercial bldings. this move would only be done if we are comfortable with the risk ;)

we currently own a 5 unit commercial and single commercial. I completely understand the time and risk of putting commercial tenants in.

this bldg is vacant bc like one of the podcast mentioned, landlord isn't pulling weight and "slumlord" reputation. the lease are said to be NNN. of course I will make sure, and I heard rumors some tenant are leaving. said landlord put 7 of his bldg up for sale at once. owned them for 30yrs. that said I'm also aware of the deferred maintenance issues if he neglected them.

@Joel Owens

I say its 50% vacant bc currently 6 unit and it has 3 tenants.

however looking at P&L I was given, its receiving 70% in rental income, 30% vacant. some of the tenant occupies multi units.

I'm asking my mortgage broker if it would be an issue! thank you.

any thought in trust holding commercial?

land trust?

Hi Jennifer, 

Have you looked at Syndicated Real Estate?  If you did that, you would be an investor in a larger commercial project - you can still 1031 into - but you would have professional management and a non recourse loan.  Depends on your individual situation how it would affect you guys and if you wanted it to be held by a trust/etc your QI can answer those issues.  But it would not require management and the headaches/liability of being the landlord.  

Karen Templeton, [email protected]

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