I am considering a short sale property (SFH) in the Magnolia area of Seattle (very desired location). The property is valued at $800,000 and is available at $680,000. It does not require more than $5000 in fixes to rent it out. It will rent for $4200. I am considering this as a one year flip. If I put in $30,000 in upgrades, I am sure I will be able to sell it for $825K right away. And if I keep it for a year, considering the location and rising King County market, I should be able to sell it for $900K. I know it does not fall in the traditional rules of renting, but my monthly payment with 20% down will be about $3300 (including taxes and insurance), so I will net about $1000 a month on a cash outlay of $150K and a net about $150K when I sell it after a year. Reason for a year is I can take advantage of 1031 exchange, which I understand is available only if property is held for at least one year and one day. Looking for insight in to this from the pros on BP.
First, just because it may have an asking price of $680k doesn't mean the bank will accept that number. They'll be looking for something close to FMV. As to the 1031, holding a year and a day doesn't automatically qualify it. The "intent" of purchasing had to be for long term investment, not flip in one year.
Thanks Wayne. Yes, you are right, it is subject to bank accepting.
How does one prove intent for long term investment?
Wayne is correct. It all boils down to your intent. If you acquire the property and hold for 12 months and then put the property on the market, you would most likely qualify for 1031 Exchange treatment, unless you get audited and they can prove that you actually had the intent to buy and flip (not hold). The can look at contracts, emails, loan applications, etc., to determine what your intent is. You would be surprised what they can find that shows your intent.
Got it, ok, will hold it unless there is a need to sell.
I got answers on 1031, but was wondering if the experts can look at the deal and purely based on numbers, is it worth it.