Should I refinance ?

2 Replies

I have a property that will sell for 190k and it's free and clear. I also have funds allocated toward the rehab. Would it be better to refi and keep the 25k toward the flip. I had plans on doing a 1031 exchange on it so I wouldn't profit unless I did a boot .However , I would have to pay it back or get taxed . Help 

@Rodney Hunter , I'm not sure I totally understand your situation.  If the property you have free and clear was purchased recently with the intent of flipping it would not qualify for a 1031 exchange anyway.  However, if you have owned it with the intent to hold for investment then it would qualify for a 1031.  You're right you would need to purchase at least as much as you sell in order to avoid any boot and tax.  But that would be the only situation you would have to "pay back" something with a 1031.

OTOH - Doing a refi to get rehab funds or using funds on hand to do your rehab before a sale does not change taxability in any way.  If you refi and do a 3031 then the loan is paid off at closing of sale.  If you use . your own proceeds and then 1031 then those proceeds become tied up with the 1031.  

So a quick reference would be if you want to 1031 then refi and rehab.  If you don't want to do a 1031 then save the mortgage costs and use your own funds.

@Dave Foster For sure , I wanted to save our cash to free us up for emergency buying. I've had the home for over 7 years, so I would be able to do a 1031 ,but would I be able to refi first and it tie in to closing ? And be able to find a like kind property for that price . I'm basically trying to keep my money in the bank instead of using it on rehab