Private Investor Strategy & Questions

4 Replies

Good Evening BP!

Okay so I have 1 flip under my belt (net 19k)

I put all that money back into my current residence that we are deciding to make our primary residence after 35k of renovations, because we love it so much. My neighbor saw me working everynight late and came over a few times. This basically grew into him loving the work I did and wanting to invest in and with me. After a meeting today, we discussed numbers and goals. By January we want to initiate our plan. This doesnt mean rushing into a deal but being able to finally analyze deals with power to buy.

I have a bunch of questions i would love some help on.

What are some options when structuring a parntership like this, 50/50 a good route?

A major question i have is what happens after we sell the property? as far as taxes go, we plan to do multiple deals together, do we have to 1031 into the next property or how does that work?

I would love feedback and advice or even links to something to read.

@Tanner Carson , on the 1031 front it all depends on how you own and report that property for tax purposes.  Many people have a "partner" but the property is really owned by each as a tenant in common.  If that is the case then at every sale you each have the opportunity of staying together and doing a 1031 on the entirety.  Or you can separate and each do your own 1031 on your %.

If your partnership is registered or if you own the property in an entity like an LLC or some other critter then that entity which files the return reporting the activity of the property is the tax payer and that entity has to do the 1031. So in that case you are stuck going forward together.

Probably the most common scenario I've seen with two casual partners is a tenant in common ownership with a master operating LLC. The LLC manages the property, and dictates the outcomes and provides some shield for the owners. The tenant in common ownership ensures that each partner can separate or stay together when the time to sell comes.

@davefoster

Thank you so much for the quick response! that really helps me clear it up! I have never explored too much at starting the LLC it has always just been a "plan"

Can you explain a little deeper the tenant in common relationship, this means the property wasn't purchased through the LLC?, but through conventional financing or cash under either or both of the partners? and then management of it is ran through the LLC?

Also, if you can shed light on the options of not 1031'ing at all?

It just falls under capital gains in a short term basis at 28% and you just take the hit?

I guess my main concern is, yes i agree shelter the tax hit into a snowballing portfolio, but when is it okay to keep the proceeds. 

Awesome advice, thank you! i tried to tag you in the above comment back but couldnt figure out how to do that

Originally posted by @Dave Foster :

@Tanner Carson, on the 1031 front it all depends on how you own and report that property for tax purposes.  Many people have a "partner" but the property is really owned by each as a tenant in common.  If that is the case then at every sale you each have the opportunity of staying together and doing a 1031 on the entirety.  Or you can separate and each do your own 1031 on your %.

If your partnership is registered or if you own the property in an entity like an LLC or some other critter then that entity which files the return reporting the activity of the property is the tax payer and that entity has to do the 1031. So in that case you are stuck going forward together.

Probably the most common scenario I've seen with two casual partners is a tenant in common ownership with a master operating LLC. The LLC manages the property, and dictates the outcomes and provides some shield for the owners. The tenant in common ownership ensures that each partner can separate or stay together when the time to sell comes.

@Tanner Carson ,  If the person you want to tag is not your colleague yet then just hit @? and a list of everyone who has responded to your forum post pops up :)  If the person is your colleague then just typing @ and the persons name will bring up your colleague list.  There @Mindy Jensen I did my good deed for today :)

Lets say you and I want to buy a 4 plex that is $300K. So we go halfsey on it. You put in 150 and I put in 150. We could form an LLC to own the property and each of us would have 50% membership of the LLC. But the LLC is the owner of the property so it would have to do the exchange. You and I are stuck together until we dissolve the LLC.

But each of us could also purchase 50% of the property as tenants in common.  You own and undivided 50% of the property and I own an undivided 50% of the property.  I actually own $150K of real estate.  It just happens to be 50% of a bigger piece.  Same with you.

When we sell for $400K I am selling a piece of real estate for $200K and you are selling a piece of real estate for $200K.

We could stay together and buy another $400K of investment real estate.

I may want to do a 1031 for my $200K sale  and you do a 1031 for your $200K sale to buy something different.

You may want to do a 1031 on your $200K sale and I may want to just take the cash and pay the tax on my sale (hah - not likely says the 1031 guy).

That's why options are so many when you own as tenants in common.