1031 with hard money
I rewrote this a few times I know its a handful, thanks for looking. Feel free to shoot holes in it.
Got a q for you BP. I am doing a 1031. I have a CPA and a QI. I understand that advice here is not professional, even if you are a professional. I'm on my own.
My QI hasn't done this sort of transaction before, and though they do give good advice I want to double check it here. My biggest concern here is the IRS will disallow the transaction bc of the extra money the HML is offering.
Here is my situation.
I'm in contract on a package of distressed properties at 1.375m. The property I sold was 1.7m. The loan was 830k. My escrow after sales expenses is 729k, I took out 30k at closing. I will pay capital gains on that. I plan to find one more property that will amount to my total sale proceeds, so I can avoid the CG tax on 200K. My LTV is about 50% on the first transaction. I am still in the 45 day period. I will most likely close on the first property while in that window. Then I plan to use the cash flow, 30K a month to purchase the last property using another loan. At the end of it I want and 830k or more loan with 729k of my money. Is that ok?
The small local banks I spoke with said this would be a difficult deal, so I went after hard money.
The HML term sheet offered to give me a loan of 900k at 12/3. The 900k is including an interest payment account. They will loan me six months payments up front so I don't have to make payments while I am stabilizing the property. I will be rehabbing and buying out tenants so I like the option. There is no prepayment penalty. My plan is to make payments anyway. The downside is the 3% points up front but I am ok with that.
They also will establish a draw account for rehab of 150k.
The property cash flows after all expenses, and can cover the HML, with room to spare.