1031 question

[Cheryl C.]

I am doing a 1031 on the sale of a property that has been depreciated down to nothing (it's a condo). I own it free and clear. I would like to have the cash - but not the tax bill. I am thinking that if I buy a rental for cash and then refi it in a year or so I can extract the cash w/o a tax consequence. Anyone see a problem with this? How soon can I refi it? I don't want any "boot".

[Dave Toelkes]

Cheryl,

First, commercially financed properties don't count against the number of financed properties under the Fannie/Freddie underwriting guidelines.

Second, commercial loans are not governed by the Fannie/Freddie underwriting guidelines. Most commercial lenders do not have a financed property limit. You can usually get another commercial loan as long as the income your property generates is sufficient to service the loan and you have the required equity in the property. Consolidating your commercial loans, will cost you some money in loan fees, but, should be unneccessary since commercial loans are not considered under the residential mortgage lender's underwriting guidelines for conforming loans.

Most of the larger banks have a commercial loan officer, sometimes called a business banking relationship consultant. If you are talking to the person that makes residential mortgage loans, you are not talking to the right loan officer.

The answer to your number of financed properties vs number of loans question is yes. A first and second mortgage on the same property is counted as one financed property.

If the seven loans you are planning to pay off are all residential mortgage loans rather than commercial loans, then eliminating these loans should help you overcome the number of financed properties hurdle for your next residential mortgage loan application.