Selling Primary Residence and Rolling Into Investment Property?

1031 Exchanges
9yFollow

Selling Primary Residence and Rolling Into Investment Property?

Austin Quick
Pasadena, CA · Member since 2014 · 3 posts · 0 votes

BiggerPockets Peeps,

Looking for some advice! I'm a 28 yr old real estate newbie wth 2 properties in Austin,Tx. 

I bought a condo as a primary residence roughly 4 years ago and moved out of it last year (so living in it 2 years out of the last 5 for 1031 exchange purposes). I'd like to sell and roll the funds into a larger (multifamily) investment property. I will not be living in the multifamily property.

I estimate that I'll have roughly $130-$145k of equity to put down. 

*Is there a penalty for moving the money from a primary residence into an investment property?

*Is there anything specific that you'd do with roughly $150k? Looking for equity/upside and ways to snowball my investment portfolio. 

Thanks for any and all input!!

Austin

0Reply
12 views

Most Popular Reply

Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y

@Austin Quick, you're confusing sec 121 which deals with your primary residence and 1031 which deals with investment real estate.  

When the property has been your primary residence and you have lived in it for 2 out of the 5 years prior to sale you are allowed to exempt the first 250K (500K if married) in profit tax free.  You can exercise sec 121 once every 2 years.  There is no reinvestment requirement.  You can do anything with the money you want.  So if you want to sell and buy investment you can.  You can also buy another primary.  Or you can buy stocks or go to Vegas.  It's tax free.

Sec 1031 deals with investment property.  When you sell an investment property that you bought with the intent to hold you can do a 1031 exchange and buy another investment property and defer indefinitely paying the tax on the gain.  

When it's been your primary you can do anything you want with the proceeds and it's still tax free. When it's investment you have to reinvest in more investment real estate to get tax deferred treatment.

The 1031 Investor5137 Reviews
WebsiteView Page
2Reply
See this reply in the discussion

5 Replies

Jump to latestLatest
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    9y

    @Austin Quick, you're confusing sec 121 which deals with your primary residence and 1031 which deals with investment real estate.  

    When the property has been your primary residence and you have lived in it for 2 out of the 5 years prior to sale you are allowed to exempt the first 250K (500K if married) in profit tax free.  You can exercise sec 121 once every 2 years.  There is no reinvestment requirement.  You can do anything with the money you want.  So if you want to sell and buy investment you can.  You can also buy another primary.  Or you can buy stocks or go to Vegas.  It's tax free.

    Sec 1031 deals with investment property.  When you sell an investment property that you bought with the intent to hold you can do a 1031 exchange and buy another investment property and defer indefinitely paying the tax on the gain.  

    When it's been your primary you can do anything you want with the proceeds and it's still tax free. When it's investment you have to reinvest in more investment real estate to get tax deferred treatment.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    2Reply
  • Dave CarpenterPro Member
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    9y
    Austin, In terms of what kind of deals to look for, I would consider trying to find a property where the seller might be willing to carry back some of the loan. I just did something similar to you with equity I used for a down payment and was able to get the seller to provide the difference of the down payment. It allowed my equity to get me into a bigger property that I could have otherwise. I'd say you are thinking about this next step the right way!
    0Reply
  • Jeremy C.
    Investor · Los Gatos, CA · Member since 2017 · 13 posts · 11 votes
    9y

    Hi @Dave Carpenter, did you choose to use seller financing because it's faster and requires less scrutiny as compared to conventional mortgage? Did the seller have worry about you not paying on time and requires a clause to foreclose the property if that happens?

    0Reply
  • Austin Quick
    OP
    Pasadena, CA · Member since 2014 · 3 posts · 0 votes
    9y

    Thanks @Dave Carpenter! I appreciate the clarification and help. I was thinking I'd need to find my next project within 6 months to avoid taxes, but it sounds like since it's my primary residence, I can take my time and be more selective (hopefully not Vegas!).

    Thanks again!

    0Reply
  • Dave CarpenterPro Member
    Investor · Cedarburg, WI · Member since 2013 · 439 posts · 150 votes
    9y
    Jeremy C. I used seller money because I couldn't buy the deal with the amount I had based on the 25% down required. Also, the seller money was cheaper than the bank rate so that helped too. I would recommend seller financing to anyone that can make it work, provided the terms are equal to or better than the banks, and the seller is willing to take second or third position on the property. If your are going to use seller money, make sure to talk to the bank and let them know what you are thinking. There can be restrictions like with an SBA loan when buying property and a business. You can also jump on here and ask the community. It may save you an unfortunate surprise further into the process.
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free