Bridge Loan to foreclosure flip

[Sam H.]

First time poster - thanks for letting me in!  I found a foreclosure listed for auction at $800K but worth $1.5-$1.8M.  Could I fund the purchase using a bridge loan with the assumption to sell my existing home ($1.5M)?  My thinking is this leaves me with two paths: A) Best case is I pick up the foreclosure for $1M, immediately list it for sale at $1.6M or more and hopefully sell for a > $500K pretax profit.  B) Worst case is I sell my current home, move into the foreclosure, live in it for 2 years, and then resell without the capital gains tax hit.  

Would a bridge loan allow the sale of the newly purchased home instead of my existing home?

Could I 1031 exchange on the sale of the quick resale of the foreclosure to buy other investments or would I be excluded from the 1031 exchange as a "dealer"?

Thanks!

[Chris Seveney]

Quote from @Sam H.:

First time poster - thanks for letting me in!  I found a foreclosure listed for auction at $800K but worth $1.5-$1.8M.  Could I fund the purchase using a bridge loan with the assumption to sell my existing home ($1.5M)?  My thinking is this leaves me with two paths: A) Best case is I pick up the foreclosure for $1M, immediately list it for sale at $1.6M or more and hopefully sell for a > $500K pretax profit.  B) Worst case is I sell my current home, move into the foreclosure, live in it for 2 years, and then resell without the capital gains tax hit.  

Would a bridge loan allow the sale of the newly purchased home instead of my existing home?

Could I 1031 exchange on the sale of the quick resale of the foreclosure to buy other investments or would I be excluded from the 1031 exchange as a "dealer"?

Thanks!

 Yes you could accomplish this. What you would do is have an agreement in place with a lender for a bridge loan and have your current home as a cross collateralization. The issue would be if you decide to live in it you will need to refinance out of it which could be problemmatic. 

It may start out at $800k but there could be other bidders who bid it up to $1.3- $1.5M. Also there could be a good chance the borrower files BK if they are still alive.