140K... What should I do?

Question

Hello BP,

I am in the process of finishing a house and will profit 140K. I am considering a 1031 Exchange to purchase a 4plex or bigger. This house is completely paid off and in a C+ neighborhood. I really do not want to  rent this house due to the location and area. Any input or advice would be greatly appreciate. Thank you.

Stone Saathoff · Answer

@James Smith, You could make a killing putting that money to work on a BRRRR deal. You are right in the sweet spot for a cash purchase and rehab.

Dave Foster · Answer

@James Smith, well there you go :). Looks like a 1031 would be perfect for you.  Since it's owned in cash your reinvestment target and net proceeds will be the same number.  I think you've already anticipated that you can always buy more than you sell and take a mortgage as long as you use all of your proceeds in the purchase - or purchases.  You can also take the proceeds from the sale and split them into down payments on two or more replacement properties.  As long as you purchase at least as much as your net sale and use all of the net proceeds you'll defer all tax.

Great plan!!

James Smith · Answer

Dave,

Appreciate the info Dave. My intent is to do a 1031 exchange because this was solely an investment property and I have held onto the property for more than a year. The house is completely paid off so the only thing I am currently paying is taxes and insurance.

Dave Foster · Answer

@James Smith,  Well you need to examine your intent.  That's going to be your biggest hurdle.  If your intent in purchasing that house was primarily to fix and sell then it would not qualify for a 1031 exchange.  But if you bought it with the intent of fixing and holding and using for investment and now something has caused you to change your intent then it would qualify for a 1031.  The key is going to be what your intent was and how do you demonstrate that if you're ever audited.  Most folks feel comfortable with property held a year.  But there could always be circumstances where a hold of shorter than (or greater than) that would suffice.  It all depends on your unique situation.