MHP owner buried in taxes, will only 1031 or let it go.

Multi-Family and Apartment Investing Forums 36 Replies

So I have a lead on a mobile home park. The owner called me after my first mail campaign to him. Our conversation was a little odd because he said he didn't want to sell the park, he only wants to do a 1031 exchange because he is buried in taxes. Otherwise he will just let it go back to the IRS. Obviously the issue here is the taxes he owes. He did call me so he must have at least some motivation to sell or to find a way to get out of this bind he is in. I still have to get more info about the specifics of this park and his tax dilemma.
I have several questions about this and I am interested to hear some creative feedback.
Thanks in advance for your help!

1. What happens to the park if he just lets it go due to not paying taxes?

2. Is it still possible to purchase it after it defaults?

3. He doesn't seem to want to discuss anything unless I have another property for him to 1031 into. What are some other creative ways I can help him (and in turn purchase the park) without trying to find a property he would like to do a 1031 into?

There is some confusion here.

If you're talking about cap gains and depreciation recapture, nothing is owed until he sells, and there wouldn't be any "just let it go back to the IRS".  If this is the case, yes he'll want to do a 1031 so you'll need to find something for him, or better yet have an agent do it.

If you're talking about an IRS lien for unpaid income taxes, he couldn't 1031 it without paying off the lien anyway.

The owner hasn't given me enough information about the situation. I am hoping to gain some clarity when I talk with him in a few weeks. It almost sounds like the first of the two scenarios because of him wanting to 1031 only. The strange thing is that he hasn't been looking for properties to 1031 into. It makes me wonder just what his reasons are for thinking that is the only way to fix the problem without "letting it go".

@Wesley Branaman Sounds like he may have an IRS lien against the property and can't clear title. You could offer a Lease Option where he gets payments and doesn't actually sell. Problem is when you go to exercise the option in a few years, it's likely that you would end up having to pay it off for him to gain title. I am not certain that he can avoid the problem with a 1031 exchange. I haven't ever needed to look into that part.

Thanks. It must be a pretty large lien for him to not pay it and then loose his investment. I would like to know more about this type of situation so I can be better prepared before I get back on the phone with him. Do you think it would be best if I search for a 1031 tax pro or a multi family tax pro?

(Congrats on your 1,000th post!) 👍🏻

@Wesley Branaman  Something is off about this , there needs to be clarity on what is going on here.  What you are saying is not a common situation , you have to get clear on the specifics of the situation not bring in an outside vendor and once you have a complete understanding of the nature of whats going on , then see if there is a way to help them out with what they need.  Id be interested in talking with you on this , feel free to get a hold of me and maybe we can hop on a call to go over this. 

Thank you @Jack Baczek for your offer. I will send you a message. I hope to hear back from this park owner sooner than later. I am very curious as well to how this might play out. I definitely don't want to miss an opportunity to get what might be a great deal.

Hello @Wesley Branaman .  What you may have is an unsophisticated seller who is confusing his projected tax bill for a sale with being "buried in taxes."

That makes a big difference to the deal and it puts you in a much better spot if it is the case.

You can do a quick records search to see if there is an IRS/State/Local lien on the property to confirm (I wouldn't trust his say so on it at this point).

If it's just an expected tax bill for a sale, he doesn't need you to do a 1031.  He can set his own up.  He just needs to find his next deal(s).  Maybe if you help him bird-dog a few of those you can get him to YES.

If it's a governmental issue, he has a bigger problem.

Bob 

Medium logo 1Bob Razler, Gardens Property Group | [email protected] | 561.316.7701

@Bob Razler Thanks. I have checked the sources I know to check and haven't found any tax issues but I am not sure if my search covered all the places to find that info. Would you happen to know a resource where I could check it out more accurately?

Hello @Wesley Branaman .....well, I don't know Texas and it doesn't want to know me.  😀

I would  suggest the county or local recorder of deeds (or whatever entity manages public recordings in Texas) or you could just pay for a title search (as if you were closing) and see what they find.  It shouldn't cost much.

Also, if you want to hack the system, if you hang around the recorders office you are likely to see an army of searchers doing their jobs for title companies.  They are usually freelancers.  You could strike up a relationship with one of them who might do the search for their fee.  Just make sure you let them know you are willing to pay.  They get bombarded with questions from people trying to do their own searches and they get pretty annoyed at providing free tech support.  😀  It's also not a bad relationship to have as you may often find that you need their services.

Bob

Medium logo 1Bob Razler, Gardens Property Group | [email protected] | 561.316.7701

Two suggestions: 

Buy it on a lease with the option to purchase or master lease

Or find him a replacement property - this is easily done by hooking him up with a company that offers DST's (Delaware Statutory Trusts). A DST is basically a great 1031 exchange tool to park your money after a sale tax free. They are usually set up to invest in "mailbox money" investments, like a walgreens, Wal mart, etc type building.

Thanks @Bob Razler I will try out those options and see what I come up with.

@Todd Dexheimer good info. So when using a DST, does that simply allow you to place your money there after the sale of a property, but before you close on the next property for a 1031?

@Wesley Branaman the DST is the replacement property. In today's market many people are placing their money in a DST after they do a 1031 exchange since the market is getting inflated. Many people think that this market has reached its peak. If you place your money in a DST when the market crashes and then starts to rebound you will have an opportunity to 1031 exchange Again.

@Todd Dexheimer Wow that sounds fantastic! I'd definitely like to learn more about that. Do you have a company or resource you prefer? Or should I just start searching on Google?

Google it. If you can't find any companies in Texas near you I know there are companies near me that are doing them and they have things nationwide

@Todd Dexheimer , DSTs are typically only available to accredited investors.  You may not be dealing with an accredited investor.  However there are a couple of other alternatives to DSTs that still act as a passive income syndication and yet also offer the tax protection of the 1031 exchange.  

Medium ergDave Foster, Exchange Resource Group | [email protected] | 850.889.1031 | http://www.erg1031.com

@Dave Foster Is a seller with an IRS lien permitted to do a 1031 exchange without having to pay off the IRS lien?

@Ken Min , I wouldn't know for certain but any lien attached to a property must be satisfied or lifted before sale can happen.  That is the purpose of the lien.  Fortunately I have no experience with the IRS placing a lien on a property and then substituting collateral or addressing pay off :)

Medium ergDave Foster, Exchange Resource Group | [email protected] | 850.889.1031 | http://www.erg1031.com

@Wesley Branaman , TIC syndications specifically set up to allow deeded ownership of a tic % of the underlying asset, and NNN ground leases are many times set up the same way.

Medium ergDave Foster, Exchange Resource Group | [email protected] | 850.889.1031 | http://www.erg1031.com

@Dave Foster thank you. I would love to be able to jump on a call with you when you have some spare time to find out more about these options if you wouldn't mind.

@Todd Dexheimer , Like everything else - reaction, over reaction, etc.  The pendulum keeps swinging.  DSTs became in favor due to the debt and management structure favorable to the syndicators, the unlimited number of investors that can be allowed, and the fact that there were some crappy TICs structured that would never have been held by an individual investor with any sense.  But wrapped in a mystical cloak they became attractive to the uneducated investor with cash but no desire for due diligence.

There's actually nothing wrong with the tic structure. It was the quality of product that was the problem. TICs are making a comeback on the smaller investor front as an alternative to the traditional LP syndication that didn't accommodate 1031.  

Like everything.  An investment won't perform the way you expect.  it will perform the way you inspect.

Medium ergDave Foster, Exchange Resource Group | [email protected] | 850.889.1031 | http://www.erg1031.com