question regarding 1031 Exchange

[Christine N.]

Hi everyone.  I bought a rental residential property for about $500k, and I estimate it will sell for about $1 million.  The property needs to be repaired in order to be sold.  The estimated repair cost will be about $100k.  I also need to do a 1031 Exchange.  For simplicity, let's just say that I will net $500k after the sale (after putting in $100k for repairs).  I believe that in a 1031 Exchange, all of that $500k net gain will need to stay in escrow and be moved to the new property.  I'm told that I cannot touch any of that $500k net gain.

Here's the problem.  I do have the $100k for repairs but I don't want to fork out $100k to put into this rental property for repairs because my $100k will be tied up and be stuck in the next property due to the 1031 Exchange.  If I do put in $100k for repairs, is there a way for me to get this $100k back into my pocket during the 1031 Exchange process, so that it doesn't go into the next property?  If not, how can I spend $100k of repairs and not have this $100k be tied up into the next property that I purchase, which will be a 1031 Exchange?  Thanks.

[Christine N.]

@Dave Foster:  Thanks for your response.  This is not a flip.  You mentioned:

"If you want your 100K back here's a couple options:

1. Simply take $100K from the sale. This would be taxable (the IRS says that the first money you take out is always profit) but you would still shelter the other $300K of gain in the 1031.

2. Complete a full 1031 and use all of cash to purchase at least $1 mil in replacement property. and then do an immediate cash out refi. A refi is not taxable but puts the money in your pocket while the rental of the property covers the mortgage."

I don't like option #1 because I would have to pay tax on the $100k.  I prefer not to use option #2 because it may take over 6 months from the sale of the rental property until I can refi to get my $100k back.  So I pose the same question that I asked Bill Exeter:

What if I get a loan on the house for $100k, use the funds to repair the house, and then, when the house is sold, the lender gets their $100k back. That way, I don't use up my $100k. If that's the case, can I get a personal loan from a friend of mine or a loan from my LLC, then, put a lien for $100k on the rental property, then, instruct the Title company to pay my friend (or my LLC) back the $100k when the house is sold? Or does the lender of that $100k have to be a financial institution like BofA, Wells Fargo, etc.?