use 1031 money to pay off mortgages ?

Jacksonville, Florida
Creative Real Estate Financing
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use 1031 money to pay off mortgages ?

Daniel Blau
Investor · Jacksonville FL · Member since 2019 · 5 posts · 0 votes

I have two lines of credit used to purchase properties which are adjustable rate ... and now given the increased prime rate they are not such great rates any longer.    if i sell an investment property is there is a way to use the money to pay off the mortgage on that property ?   what about to pay off the mortgage on another investment property ?   is this allowed or is there a "creative" way to do this ?  

thanks Dan   

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
3y

@Daniel Blau, There's creative ways.  But not that would hold up if ever audited.  If those LOCs were attached to the property you are selling then they would have to be paid off.  And that would be fine.  But paying off the debt for another property you own won't work.

You could do a 1031 and then refinance the new property afterwards and pay off the LOCs.  That would also be fine.

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  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    3y
    Quote from @Daniel Blau:

    I have two lines of credit used to purchase properties which are adjustable rate ... and now given the increased prime rate they are not such great rates any longer.    if i sell an investment property is there is a way to use the money to pay off the mortgage on that property ?   what about to pay off the mortgage on another investment property ?   is this allowed or is there a "creative" way to do this ?  

    thanks Dan   

    Not really. When you sell using a 1031 exchange, you are committing to buying a more expensive like kind investment. Any money you don't apply to the new purchase gets taxed.

    If you are planning a 1031, contact a qualified intermediary before you do anything. There are a couple of competent QI's here on Bigger Pockets. If you sell your property before setting it up with a QI it is too late.
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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    3y

    100% taxable. 

    You have to spend more than your net sale price on new properties. (Acquire more debt at current rates) not pay off debt on properties you already own. 

    Just do the math on the taxes owed and the rental income lost combined, divided by the the interest saved interest saved to find the pay back period. (Assuming you save more interest than you lose in rental income or selling has a negative return.)

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    3y

    @Daniel Blau, There's creative ways.  But not that would hold up if ever audited.  If those LOCs were attached to the property you are selling then they would have to be paid off.  And that would be fine.  But paying off the debt for another property you own won't work.

    You could do a 1031 and then refinance the new property afterwards and pay off the LOCs.  That would also be fine.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
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