Asset rich and cash poor. Need strategy advice to maximize.

Tax, SDIRAs & Cost Segregation
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Asset rich and cash poor. Need strategy advice to maximize.

Barry Ratliff
Flipper/Rehabber · Temple, TX · Member since 2008 · 168 posts · 46 votes

Would like suggestions what you would do. Here's what I have: A) 17ac ranch with dbl wide mobile value 300k, no loan. No cash flow. B) Sf 3/2/2 rent house 200k value, no loan. No cash flow son lives there. C) Sf 3/2/2 airbnb w/ 140k note 1500 mo, value 220k. Cost segregation on all 3.

What strategies would you do to get cash, pay debt and keep property? Or sell all?

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Joshua ThompsonBusiness Member
Accountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
1y

This is a great question. I think you would get more results if you post it in the Personal Finance section as it seems like a more personal finance question. From the tax side of things, we could talk your ear off on strategies but those tax strategies may not align with your financial goals or be applicable to you. I would highly recommend speaking with @Josh St Laurent. He is a financial advisor worth his weight in gold. He works mainly with real estate investors and could help you strategize from a financial perspective.

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  • Joshua ThompsonBusiness Member
    Accountant · Melissa, TX (Remote) · Member since 2017 · 210 posts · 135 votes
    1y

    This is a great question. I think you would get more results if you post it in the Personal Finance section as it seems like a more personal finance question. From the tax side of things, we could talk your ear off on strategies but those tax strategies may not align with your financial goals or be applicable to you. I would highly recommend speaking with @Josh St Laurent. He is a financial advisor worth his weight in gold. He works mainly with real estate investors and could help you strategize from a financial perspective.

    Thompson Tax Group LLC550 Reviews
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  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    1y

    If you do sell, you might consider 1031 exchanges to reinvest into higher-yielding assets or diversify into less hands-on investments (e.g., syndications, REITs, etc.).

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  • Barry Ratliff
    OP
    Flipper/Rehabber · Temple, TX · Member since 2008 · 168 posts · 46 votes
    1y

    Thanks for your reply. I didnt know you can REITS are considered in 1031s. I'll look into that. I'm really tired watching property taxes and insurance erode the profits on my investments. Exploring more passive types. Even thinking of mobile home rentals as if they are classified as personal property and not real estate, only taxed on the land and just self uninsure them. Not sexy but a 30k used units investment strategy renting for 1100 a month, I think could one way. I just would just need to renter proof them so to not damage them. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    1y

    @Barry Ratliff I agree with @Julio Gonzalez. If you decide to sell, a 1031 exchange wouldn't be a bad idea, whether or not there's a significant gain on the properties, because of all of the cost segregation on the properties.

    You said you want cash. But accessing cash through debt with no or minimal cash flow is a recipe for bad things. You're probably better off selling so all of the equity can be put to use to generate cash with less mortgage risk.

    A 1031 exchange would allow you to defer all of the tax and depreciation recapture, and reinvest all of the equity into investment property/properties that might perform better and provide some cash flow.

    There are several ways you could go about a 1031 and strategizing your RE portfolio. If you choose to sell a few or all of the properties, you can do what's known as a consolidation exchange. A consolidation exchange is where you sell multiple investment properties in a 1031 exchange and reinvest into a larger investment property.

    This would minimize the hands-on aspect of owning multiple properties and allow you to move larger investments like multifamily or commercial using all of the tax you would traditionally have to pay.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Barry Ratliff You're in a strong equity position but need better cash flow. Consider a cash-out refi or HELOC on the ranch, or rent a house to access capital without selling. Use those funds to pay down the Airbnb mortgage or reinvest in cash-flowing assets. Explore ways to monetize the ranch (ag lease, RV pads, events), and optimize the Airbnb or convert it to a mid-term rental for more stable income. If cash remains tight, consider selling one property, likely the Airbnb, to eliminate debt and build reserves. Since you've done cost seg studies, ensure you're maximizing depreciation to offset income.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

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  • Chris SeveneyBusiness Member
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    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1y
    Quote from @Barry Ratliff:

    Would like suggestions what you would do. Here's what I have: A) 17ac ranch with dbl wide mobile value 300k, no loan. No cash flow. B) Sf 3/2/2 rent house 200k value, no loan. No cash flow son lives there. C) Sf 3/2/2 airbnb w/ 140k note 1500 mo, value 220k. Cost segregation on all 3.

    What strategies would you do to get cash, pay debt and keep property? Or sell all?


    I would sell - and buy financable properties. what I mean by that is I would get DSCR loans for investment properties and mobile homes typically cannot get financing. having ahome where your son lives also is going to be problematic if he is not paying you.

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  • Jason MalabuteBusiness Member
    Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 901 votes
    1y

    What I might do could be completely different from what you should do—it really depends on your overall goals. Are you trying to grow your portfolio? Liquidate and get as much cash as possible? Get cash while minimizing taxes? Each of those paths leads to a different strategy.

    If your goal is to get the most cash quickly, then selling everything might be the answer. If you’re focused on minimizing taxes, you might look into refinancing or a cash-out strategy. If cash flow is the goal, I’d start by increasing rents and charging rent to your son. Ultimately, your decision should be based on your long-term goals and current financial situation.

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  • Barry Ratliff
    OP
    Flipper/Rehabber · Temple, TX · Member since 2008 · 168 posts · 46 votes
    1y

    @Jason Malabute what I'm wanting to do is several things. Pay off some debt to people I owe that I've tied their money up in my investments. Sell these paid off assets using 1031 to maximize tax efficiency and buying or investing in something that cash flows. Then borrow against those investment properties to purchase more producing properties by using that capital as seed $ to BRRR those. Atleast this what perceive in theory. 1. Use current rent house to borrow against for debt payoff and seed $. 2. Use the seed $ to BRRR multiple properties. 3. Sell ranch using 1031 and purchase cash property then payoff existing rent house loan off since it's a 18mo loan.

    In the mix of all this when dust settles, I should maybe 6-8 properties cash flowing with some capital left in bank as seed to purchase fix n flips.

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  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    I would sell A, keep B and C. Depending on the gain, I would either 1031 or do a lazy 1031. That way, you can defer the taxes. The benefit of the lazy 1031 would be keeping some cash as you see fit. Just make sure to place the new property into service in the same year you sell. 

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