300k and first time investor (New Jersey)

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300k and first time investor (New Jersey)

Elizabeth Taras
Member since 2024 · 1 post · 2 votes

It’s a tough market out here in New Jersey both with this high market and the high interest rate right now.   
I am selling my current business and will have about 300k that I would like to avoid paying taxes as much as possible on, so I am looking for something to invest in.   My fiance and I are largely interested in the real estate investment world and becoming landlords.    We are curious if it is best to flip a house first to get some more money under our belts, to then go ahead and buy rental properties.  Or should we buy multi family units first, but what if they need some work on them?  What is the best way to start our real estate journey and how can I avoid paying taxes on money from a sale of a business through the use of real estate investing?

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Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
2y

Hi @Elizabeth Taras   selling real estate and avoiding taxes is fairly simple via 1031 exchange but regarding selling a business that is a conversation best for an accountant.  Once you have the cash and are ready to invest that tax advantage tend to be extremely favorable. 300k liquid is great place to start.  My wife and I house hacked our way to financial freedom in New Jersey.  I am huge advocate of house hacking in NJ becuase it continues to be an unfair advantage, especially for new investors. Having tenants pay the bulk of your mortgage is a major expenses saved each month.   

973-975-3895
House Hacking New Jersey563 Reviews
WebsiteView Page
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    don't start with a flip

    start with a house hack

    https://www.biggerpockets.com/forums/88/topics/1173853-3rd-h...

    talk to a CPA about the tax situation

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    2y

    @Elizabeth Taras

    I don't think you realistically will be able to offset the sale of a business by buying real estate.

    If I may assume...  Many believe that by taking the profits (of the sale of the business) and purchasing something, such as real estate, the profits are no longer taxable.  That isn't the case.  The profits are still --- profit.  You just spent them, and purchase of real estate isn't a deduction by itself.

    Also, I don't believe you can do a 1031 exchange from the sale of a business, so you can't defer the tax in that manner.

    In terms of how to invest next..  It partially depends on what sort of deals you can find.  Also, depends on what are your capabilities and skills.  People lose money all the time investing in real estate.  Also, while flipping can have a high reward, it also has a high risk.  So, you can seriously lose money doing that as well.  

    Honestly, in what manner to get started is based on a bunch of factors, which I'm not sure if can cover all here.  For example, do you already own your own residence?  If you are selling your business, what are you two doing for income now (goes toward financing ability)?  Are you mobile in any way?  etc.

    Hope this helps some.  Good luck.

    0Reply
  • Roberto Rohann
    Member since 2022 · 20 posts · 9 votes
    2y

    Following as I’m in the NYC area and I know the market here is tough for cash flowing  duplexes 

    0Reply
  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    2y

    Hi @Elizabeth Taras   selling real estate and avoiding taxes is fairly simple via 1031 exchange but regarding selling a business that is a conversation best for an accountant.  Once you have the cash and are ready to invest that tax advantage tend to be extremely favorable. 300k liquid is great place to start.  My wife and I house hacked our way to financial freedom in New Jersey.  I am huge advocate of house hacking in NJ becuase it continues to be an unfair advantage, especially for new investors. Having tenants pay the bulk of your mortgage is a major expenses saved each month.   

    973-975-3895
    House Hacking New Jersey563 Reviews
    WebsiteView Page
    1Reply
  • Fulton Abraham Sanchez
    Accountant · CPA Miami, FL · Member since 2022 · 192 posts · 43 votes
    2y

    @Elizabeth Taras, hi. It would be best for you to reach out to an investor savvy CPA, there are over 20+ enlisted CPAs here in Biggerpockets assisting clients with their tax planning and strategies. 

    Best of luck!

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Elizabeth Taras. If your business includes both business assets and real estate you can do a 1031 exchange for the real estate portion of the business only.  You'll have to pay tax on the remaining FFE (furniture fixtures and equipment) and good will.

    The 1031 Investor5137 Reviews
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  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y
    Quote from @Elizabeth Taras:

    It’s a tough market out here in New Jersey both with this high market and the high interest rate right now.   
    I am selling my current business and will have about 300k that I would like to avoid paying taxes as much as possible on, so I am looking for something to invest in.   My fiance and I are largely interested in the real estate investment world and becoming landlords.    We are curious if it is best to flip a house first to get some more money under our belts, to then go ahead and buy rental properties.  Or should we buy multi family units first, but what if they need some work on them?  What is the best way to start our real estate journey and how can I avoid paying taxes on money from a sale of a business through the use of real estate investing?


     Hey Elizabeth, Since you are selling your business you are likely getting capital gains treatment on that gain if you have owned the asset for over 12 months. To wipe out capital gains, you can invest in private real estate syndications where the work is done for you, and inside those deals the sponsors can take care of doing the cost seg to offset the capital gains. While I think this is a great beginner strategy, it warrants quite a bit of research as you need to understand which sponsors and deals are good and which ones are not. Every deal looks great in a presentation! You need to know what questions to ask and how to vet the deal, but the work itself you don't need to do.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    2y

    @Account Closed The profits from the sale of a "business," not the business real property, is considered a capital gain?

    0Reply
  • Account Closed
    Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
    2y
    Quote from @David M.:

    @Account Closed The profits from the sale of a "business," not the business real property, is considered a capital gain?


     So classic accountant answer: It depends. 

    Generally speaking, sales of assets such as equipment, buildings, vehicles and furniture will be taxed at ordinary income tax rates, while intangible assets such as goodwill or intellectual property will be taxed at capital gains rates. 

    When you sell or buy a business, its usually done via an "asset sale" as opposed to a "stock sale" and the person buying the business is usually buying goodwill or intellectual property for the majority of the purchase. 

    0Reply
  • Joseph Guzzardi Jr
    Rental Property Investor · Member since 2019 · 411 posts · 148 votes
    2y

    @Elizabeth Taras I cannot comment on the tax perspective here; however, I'd say buy a lower priced small MFR to get your feet wet where you can force value. I would only consider a flip if you partner with a trusted expert for your first deal.

    0Reply
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