I saw an ad on craigslist about a burned up house in north canton ohio. I texted the seller, got the address and did a drive by. it was about 1900 square feet, 4 bedroom 1 bath, with a detached 2 car garage. the house was across the street from the Hoover building that is being renovated into apartments, retail, etc. the parking lot actually butted up to this property. I made an offer of $6000 and planned to flip it when my current flip was completed,which was still about 2 months out. within a month I received a letter from the investment company doing the Hoover project inquiring about me selling the property. I called, they called back. I said $20,000 was my price. they accepted and we closed in a few weeks. I think I owned it for about 2 months and had the grass mowed and nothing else. I 1031'd the money into another buy. maybe I should have started higher because they accepted the first offer but had they countered any 16,000 I would have accepted
Keep the momentum but tie your profits up into passive income.
Who doesn't love a burned out house? Congratulations!
thanks everyone! I used that money as well as the profit from another flip to buy the family home for the next decade or so. this will allow us to rent the house we are in now so in a round about way we are increasing our passive cash flow
Congrats! Sucks thinking you might have left money on the table though. Did you go on the mls and see what they bought the property across the street for? Might give you a good idea on what they might have paid you if the properties are close to having the same characteristics. If you are brave enough to look :P
Great deal but I would have definitely made them submit an offer first.
How did you "1031 the money into another buy" when your intent all along with the initial purchase was to flip it? If your intent was to flip the property then you did not have the intent to hold it for investment purposes and it wouldn't have met the qualified use test or qualified for 1031 exchange treatment.
the property across the street is a huge factory used to make Hoove
good question, I meant to rehab it.
@Kyle J. , Great observation. And the answer is that this 1031 is only "GTA (good till audit). 1031 exchanges are only allowable on property to intended to be held for productive use. Although intent can change and hold periods be a little flexible, when @Jeffery Waicak says he was intending to flip as soon as his last flip closed that sealed his fate. It also appears that the property wasn't sold to purchase another investment property. It was sold to purchase his next primary residence - another fact that will disallow your exchange. Sorry @Jeffery Waicak. Keep your fingers crossed it's not audited. Your qualified intermediary either gave you bad information or you ignored their counsel.
i intended to rehab and move in, then refi and pull out more cash than I put in. that is what I meant by flip, I have heard another use this term. that is also the intention on the one I bought with the proceeds. if i get another letter from an investor wanting to buy this one, I will 1031 again, try to move in and refi my money out.
@Jeffery Waicak , you're absolutely right - the unsolicited offer is a beautiful thing because you can maintain that you weren't intending to sell but along came an offer you just couldn't refuse.
"Flip" is such a problematic word because it gives the impression that the intent is not to buy and hold but rather to buy and sell. Even if a rehab happens in the middle it would still be considered that you bought it primarily for resale rather than to hold.
Unfortunately the other and even bigger problem you have is that you intended to rehab and move in. That means that you were in essence selling an investment property and buying your primary residence. Totally different animals and not allowable for 1031s.
Moving into a property that you have purchased with a 1031 as an investment and then later changing your mind and moving into it is one of the great tools available to you and there is some good IRS guidance for doing so. But your intent when you buy that property cannot be to simply move in. Your intent must be to use it as an investment and then later you change your mind.
We encourage our clients to eliminate the word flip from their vocabulary. They buy real estate with the intent to hold for productive use in business trade or for investment (not their primary residence). If their intent(as demonstrated by documentation with their councilors, BP posts, etc and by actual use and tax return treatment) is to hold as a rental or rental parking lot or whatever and an unsolicited offer for purchase comes along it is much easier for them to demonstrate their intent.
it doesn't make sense sorry. I bought the house intending on being my primary residence for at least a decade, I bought the replacement intending to live I it for at least a decade. perhaps flip isn't the right word but yes it was an unsolicited offer.
"An exchange in which, pursuant to an agreement, the taxpayer transfers property held for productive is in trade, or business or for investment and subsequently receives property to be held either for productive use in trade, or business, or for investment".
You can't sell investment property and buy your primary residence.
But you can sell investment property, buy investment property and then later change it to your primary residence.
then I guess I better hope no audit
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