1031 Question and When to cash out

[Jake Rhodes]

All hypothetical - If I buy a flip and sell it for $150K, then use 1031 and buy another for $150K and flip for $200K, then on the third buy for $200K and flip for $250K.  At that point, Can I 1031 into a long term rental hold and miss having the tax penalty?  Or will it all catch up at that point and I will owe?  

Which amount will I be taxed on?  The $250K?  

If you have to use 1031 for the same value or greater, what happens when the price continues to escalate?  Do people try and get a larger multi-family at this point?

ANY other strategies?

Thanks in advance 

~Jake~

[Dave Foster]

@Jake Rhodes, that's a great question.  Unfortunately I don't think you're going to like the answer.  You can 1031 the sale of any property that you purchased with the intent of holding for productive investment use.  As long as you purchase the property with the intent of flipping then you can't 1031 it.  Sounds like you're trying to gain traction using short term gains to get critical mass to buy a hold property.  Nothing wrong with that.  But at this point in the market you'll probably find that you'll get there more quickly with less cost if you buy the first and hold, then 1031 into a new one and etc etc.

Basically change the flip game from buy fix flip to buy fix rent evaluate for sale.  

As investors grow they sometimes go into MF.  But it's not as much a given as the frenzy you hear about.  Many folks stay right with their sweet spot and simply sell one and buy multiple replacements.  Or they go into commercial, or raw land, or whatever.  But as long as you hold a property after a 1031 you'll never pay tax.  and as long as any time you sell a property and do a 1031 you'll never pay the tax.  And if you die while holding a 1031 property your heirs get it tax free.

That's the game plan - diversify, defer defer defer and die.