How to pyramid up to bigger real estate
Glenside, PA · Member since 2015 · 22 posts · 0 votes
How to pyramid up to bigger real estate
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes@Phil Sabella, Good luck on your search. Sounds like a well thought through plan.
The 1031 exchange is a process you'll use when selling investment real estate that allows you to defer paying tax on the gain (fed only in PA unfortunately) and instead using those tax dollars to purchase additional investment real estate. In essence it is a long term loan from the IRS acting almost exactly like an IRA but outside your IRA. You get to use the tax money as long as you play by the rules.
You're searching for a property that you can mix the use on - part primary residence and part investment. If you live in part of it for two out the previous 5 year period you will be able to take out the gain from the allocation of the portion you lived in (up to 250K if single or 500K if married) tax free!. And you will be able to defer the tax on the portion you use as investment with a 1031 exchange. An excellent way to get the free use of govt money to ratchet your portfolio up.
The 1031 Investor5137 Reviews
22 Replies
- 10yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Phil Sabella, Good luck on your search. Sounds like a well thought through plan.
The 1031 exchange is a process you'll use when selling investment real estate that allows you to defer paying tax on the gain (fed only in PA unfortunately) and instead using those tax dollars to purchase additional investment real estate. In essence it is a long term loan from the IRS acting almost exactly like an IRA but outside your IRA. You get to use the tax money as long as you play by the rules.
You're searching for a property that you can mix the use on - part primary residence and part investment. If you live in part of it for two out the previous 5 year period you will be able to take out the gain from the allocation of the portion you lived in (up to 250K if single or 500K if married) tax free!. And you will be able to defer the tax on the portion you use as investment with a 1031 exchange. An excellent way to get the free use of govt money to ratchet your portfolio up.
The 1031 Investor5137 Reviews - York, PA · Member since 2015 · 199 posts · 58 votes10y
Originally posted by @Phil Sabella:
Hi Everyone! I am actively searching for my first multi family property here in the suburban Philadelphia, PA area. I am 24 and new to the investment game. What I would like to do is to get FHA and live in one of the units and rent out the other 1-3 units. My end goal is to eventually pyramid up so that after my first year I can eventually sell and purchase a bigger property so on and so forth. I have heard about a 1031 exchange but not sure exactly how that works and if it is my only option or not. Thanks to anyone willing to help!
Phil
Hi Phil,
Pleasure to meet you. That's exactly what I plan on doing as well. To Pyramid up, yes you can only do it with the 1031 exchange.
Buy this book for yourself if you haven't already: "Investing in Duplexes, Triplexes, & Quads: The Fastest and Safest Way to Real Estate Wealth" by Larry B. Loftis.
Let me know if you have any further questions.
Best,
Dom
- York, PA · Member since 2015 · 199 posts · 58 votes10y
Originally posted by @Dave Foster:
@Phil Sabella, Good luck on your search. Sounds like a well thought through plan.
The 1031 exchange is a process you'll use when selling investment real estate that allows you to defer paying tax on the gain (fed only in PA unfortunately) and instead using those tax dollars to purchase additional investment real estate. In essence it is a long term loan from the IRS acting almost exactly like an IRA but outside your IRA. You get to use the tax money as long as you play by the rules.
You're searching for a property that you can mix the use on - part primary residence and part investment. If you live in part of it for two out the previous 5 year period you will be able to take out the gain from the allocation of the portion you lived in (up to 250K if single or 500K if married) tax free!. And you will be able to defer the tax on the portion you use as investment with a 1031 exchange. An excellent way to get the free use of govt money to ratchet your portfolio up.
Thanks for the additional detail Dave! So I'm guessing it doesn't matter what state you're based out of, you can still help anyone in the country do a 1031 exchange? I see from your profile you're down in Florida.
- 10yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Dominic Jones, Yep, QI firms are typically national in scope and can help clients wherever they are because 1031 is a federal statute. You want them on your team and able to work well with your accountant to work through and maximize benefit state by state and within your specific situation.
I chose warmth :)
The 1031 Investor5137 Reviews - Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes10y
Hi @Phil Sabella, that's a great plan. Since you'll be living in one unit, what are your parameters for location based off work/family/friends?
- Glenside, PA · Member since 2015 · 22 posts · 0 votes10y
Gregory,
My work, school, family and friends are all in Montgomery county so I would be looking in Phila, Montco, Bucks and Delco.
Originally posted by @Gregory H.:
Hi @Phil Sabella, that's a great plan. Since you'll be living in one unit, what are your parameters for location based off work/family/friends?
- Glenside, PA · Member since 2015 · 22 posts · 0 votes10y
Thank you for the information Dave!
Originally posted by @Dave Foster:
@Phil Sabella, Good luck on your search. Sounds like a well thought through plan.
The 1031 exchange is a process you'll use when selling investment real estate that allows you to defer paying tax on the gain (fed only in PA unfortunately) and instead using those tax dollars to purchase additional investment real estate. In essence it is a long term loan from the IRS acting almost exactly like an IRA but outside your IRA. You get to use the tax money as long as you play by the rules.
You're searching for a property that you can mix the use on - part primary residence and part investment. If you live in part of it for two out the previous 5 year period you will be able to take out the gain from the allocation of the portion you lived in (up to 250K if single or 500K if married) tax free!. And you will be able to defer the tax on the portion you use as investment with a 1031 exchange. An excellent way to get the free use of govt money to ratchet your portfolio up.
- Glenside, PA · Member since 2015 · 22 posts · 0 votes10y
Thanks Dominic. I will be looking into that book. A book that I just purchased literally today that was also recommended to me is called "Multi-Family Millions" by David Lindahl. Give that one a look as well.
Originally posted by @Dominic Jones:
Originally posted by @Phil Sabella:
Hi Everyone! I am actively searching for my first multi family property here in the suburban Philadelphia, PA area. I am 24 and new to the investment game. What I would like to do is to get FHA and live in one of the units and rent out the other 1-3 units. My end goal is to eventually pyramid up so that after my first year I can eventually sell and purchase a bigger property so on and so forth. I have heard about a 1031 exchange but not sure exactly how that works and if it is my only option or not. Thanks to anyone willing to help!
Phil
Hi Phil,
Pleasure to meet you. That's exactly what I plan on doing as well. To Pyramid up, yes you can only do it with the 1031 exchange.
Buy this book for yourself if you haven't already: "Investing in Duplexes, Triplexes, & Quads: The Fastest and Safest Way to Real Estate Wealth" by Larry B. Loftis.
Let me know if you have any further questions.
Best,
Dom
- Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes10y
Originally posted by @Phil Sabella:
Gregory,
My work, school, family and friends are all in Montgomery county so I would be looking in Phila, Montco, Bucks and Delco.A wide search, that's a good sign if you're willing to go where the deal will take you. Well, I already have MLS searches in place for all new Multis that come on the market in Montco & Bucks. If something pops up that I think might be of interest to you, I'll pass it along. Good huntin
- Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes10y
Search here on BP for BRRRR. Brandon Turner has laid out a strategy that's going to work for any type of property.
Read Michael Blank's blog posts about how to syndicate your way into MFR investing.
Good luck.
- Glenside, PA · Member since 2015 · 22 posts · 0 votes10y
Thank you Gregory. Look forward to hearing from you.
Phil
Originally posted by @Gregory H.:
Originally posted by @Phil Sabella:
Gregory,
My work, school, family and friends are all in Montgomery county so I would be looking in Phila, Montco, Bucks and Delco.A wide search, that's a good sign if you're willing to go where the deal will take you. Well, I already have MLS searches in place for all new Multis that come on the market in Montco & Bucks. If something pops up that I think might be of interest to you, I'll pass it along. Good huntin
- Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes10y
Originally posted by @Dominic Jones:
Originally posted by @Phil Sabella:
Pleasure to meet you. That's exactly what I plan on doing as well. To Pyramid up, yes you can only do it with the 1031 exchange.
The 1031 is a good move, but "ONLY DO IT" is an exaggeration. There are consequences to NOT using it, but there's always more than one choice; Sheez!
Speak truth at all times and let the reader/listener make the decision!
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes10y
Welcome, I'm in Harrisburg.
One alternative to doing a 1031 is to NOT sell your first 4 unit. If you live there for a least a year and have financed with FHA, which is only for owner occupants, you can rinse and repeat. Buy a second 4 unit, move there and finance with FHA again as an owner occupant.
I wrote about a friend who di this 7 times in a row, serial FHA owner occupant living.
You will:
1. Need to move every year or so.
2. You will get the lowest interest rates, something like 3.5%s.
3. You will need the lowest downpayments for FHA its currently 3.5% downpayment.
4. Your mortgages will all be fixed for 30 years.
5. Your assembled portfolio will be heavily financed enabling you to buy more properties.
6. You will need the least amount of downpayment money.
The only down side is the moving every year or so, everything else from my point of view are pluses.
Transaction costs for real estate are high, closing costs, points, fees, recording fees, etc. By selecting great properties to begin with, why sell? Why kill the golden goose? I just sold two apartment building that I had owned many years. They are such good properties that I was reluctant to sell. The property was not for sale and somebody made me an offer that I couldn't refuse. On this particular property I was only the second owner since 1941, before Pearl Harbor! I told the new buyers that this was one factor that said that this was a good property to own. If the property was lousy and was not a good investment it would have a new owner every other year!
- York, PA · Member since 2015 · 199 posts · 58 votes10y
Originally posted by @Jeff B.:
Originally posted by @Dominic Jones:
Originally posted by @Phil Sabella:
Pleasure to meet you. That's exactly what I plan on doing as well. To Pyramid up, yes you can only do it with the 1031 exchange.
The 1031 is a good move, but "ONLY DO IT" is an exaggeration. There are consequences to NOT using it, but there's always more than one choice; Sheez!
Speak truth at all times and let the reader/listener make the decision!
You're right. I should've added "as far as I know" ;)
Didn't mean to misinform.
What's the other way?
- Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes10y
Frankly, that's the BEST way, and the others invoke Capital Gains. Sorry to rain on you, but IMO, hearing, "ONLY, ALL, Never" ignores other choices as if they don't exist, which clearly just aint so, and rings my bell (sorry) - - when there are just consequences to some that 'usually' are unpleasant.
Putting all choices on the table, allows the reader to reach the epiphany position,
- AHH, I see
using their standards and needs
- Contractor · Queen Creek, AZ · Member since 2014 · 155 posts · 37 votes10y
Originally posted by @David Krulac:
Welcome, I'm in Harrisburg.
One alternative to doing a 1031 is to NOT sell your first 4 unit. If you live there for a least a year and have financed with FHA, which is only for owner occupants, you can rinse and repeat. Buy a second 4 unit, move there and finance with FHA again as an owner occupant.
I wrote about a friend who di this 7 times in a row, serial FHA owner occupant living.
You will:
1. Need to move every year or so.
2. You will get the lowest interest rates, something like 3.5%s.
3. You will need the lowest downpayments for FHA its currently 3.5% downpayment.
4. Your mortgages will all be fixed for 30 years.
5. Your assembled portfolio will be heavily financed enabling you to buy more properties.
6. You will need the least amount of downpayment money.
The only down side is the moving every year or so, everything else from my point of view are pluses.
Transaction costs for real estate are high, closing costs, points, fees, recording fees, etc. By selecting great properties to begin with, why sell? Why kill the golden goose? I just sold two apartment building that I had owned many years. They are such good properties that I was reluctant to sell. The property was not for sale and somebody made me an offer that I couldn't refuse. On this particular property I was only the second owner since 1941, before Pearl Harbor! I told the new buyers that this was one factor that said that this was a good property to own. If the property was lousy and was not a good investment it would have a new owner every other year!
Hi Dave I have a question on this info you gave, is it only for multi family or can it be also done with SF. My husband and I did an FHA when we bought our fist home in 2002, long story short we took out the equity and made that money grow, so that was the only time we have financed from that point on we have done everything cash, so we are not familiar with financing.
We would also like to get information on construction loans can you point us to the right direction?
- York, PA · Member since 2015 · 199 posts · 58 votes10y
Originally posted by @Jeff B.:
Frankly, that's the BEST way, and the others invoke Capital Gains. Sorry to rain on you, but IMO, hearing, "ONLY, ALL, Never" ignores other choices as if they don't exist, which clearly just aint so, and rings my bell (sorry) - - when there are just consequences to some that 'usually' are unpleasant.
Putting all choices on the table, allows the reader to reach the epiphany position,
- AHH, I see
using their standards and needs
I can dig it.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes10y
Yes, you can use FHA financing (which is only for owner occupied) for SFH, duplex, tri-plexes or 4 plex.
you can't you for 5 or more units.
you can use FHA multiple times. and the interest rates are lo and the downpayments are MUCH lower than investor loans.
It pays to borrow for FHA owner occupied houses. Credit scores are lower too only 620.
- Rental Property Investor · Pittsburgh, PA · Member since 2016 · 1 post · 0 votes10y
Nice to see some PA investors on here!
@David Krulac - in order to qualify for the additional FHA loans, are you forced to refinance before moving on to the next property?
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes10y
No, you don't have to refinance. Consider this you buy a property FHA, you getting 96.5% financing at maybe 3.5% interest fixed for 30 years. You have to live there for 1 year minimum. You do that you satisfy all the requirements of the mortgage, then move on, rinse and repeat.
Besides my friend who did this 7 times in a row, I've done it a few times myself getting a owner occupied mortgage living there then buying another owner occupied house, keeping the old house and its mortgage in place and renting it out. Its one way of Buying and Holding, and accumulating more property, but obviously not the only method. The story of my friend is in Chapter 128 of my book.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes10y
@Jason V.
I've bought and sold over 900 properties. Most of the first properties I held for years, to me that's pyramiding, and there was no scheme involved. To do Buy and Hold, you buy property keep it and buy more property, where's the "scheme". This isn't Bernie Madoff material. I did have some partners in some properties but all mortgages were against me and I never got any money from any other investors, where's the scheme?
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