All Forum Posts by: Angela A.
Angela A. has started 4 posts and replied 8 times.
Post: Cash out after 1031
- San Diego, CA
- Posts 9
- Votes 6
Quote from @Ashish Acharya:
@Angela A. In your scenario, selling the relinquished property for $450K after completing a reverse 1031 exchange will allow those proceeds to repay the intermediary without triggering capital gains taxes, provided all exchange requirements are met. A subsequent cash-out refinance of the replacement property (e.g., $250K on a $1M property with a $500K loan) is treated as a loan and generally has no tax implications related to the 1031 exchange. However, refinancing too soon after the exchange could raise IRS scrutiny about the exchange's intent, so waiting several months is advisable.
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.
Thank you, @Ashish Acharya! Would 3 months be too soon, or 6 month is on the safer side?
Post: Cash out after 1031
- San Diego, CA
- Posts 9
- Votes 6
Quote from @Dave Foster:
@Angela A., That would work as long as you mean that your QI will be buying the new property and holding it until you sell your old property. They will be able to hold it for up to 180 days to give you time to sell your old property.
The complications with reverse exchanges and lending is exactly what Bill asked. You have to guarantee the loan but you are not a buyer of the property. Your QI is. This pretty much wipes out any conventional lender. Most reverse exchanges are done with cash from the client or a private loan of some sort from an individual or a portfolio bank.
When your old property sells you will have that cash in your account to purchase the new property. You can "buy" the property from the QI for the $450K (the amount you lent to them). And you assume the rest of the mortgage that you're already guaranteeing.
Your idea to refinance immediately after to get favorable financing is perfectly fine. There are a few folks out there encouraging some seasoning. But there's no body of case law indicating that to be a concern. Refinancing immediately prior to a sale - yes that is a cause for some seasoning.
Thank you so much, @Dave Foster!
Post: Cash out after 1031
- San Diego, CA
- Posts 9
- Votes 6
Quote from @Aristotle Kumpis:
Hi Angela. You are fortunate to be able to do a reverse exchange. Once you sell your old property and use a QI, the exchange will be complete and your capital gains will be deferred. There is nothing that the IRS says about how long you have to wait do a refinance. However, most people wait at least 6-12 months just in case the IRS doesn't question it. If you did the refi 3 months after, it could trigger them to audit you. So best to wait some time before you do it.
Thank you! That makes sense.
Post: Cash out after 1031
- San Diego, CA
- Posts 9
- Votes 6
Hi All,
I am considering doing a reverse 1031. Following is the scenario.
I will buy a replacement property at $1M, with $500K down. After that, I sell the relinquish property at $450K, free and clear. The $450K will be returned to me as payback of my loan to the intermediary when the sell completes, without triggering any capital gain taxes, right?
Say, 3 month later, I decide to do a cash out refinance of the replacement property at 75% LTV because the rate is lower. Assuming the property is still valued at $1M. The current loan is $500K, and I will get $250K out. Will this cash out have any tax implication on the 1031 exchange already completed?
I really appreciate your comments.
Angela
Hi All,
I am considering doing a reverse 1031. Following is the scenario.
I will buy a replacement property at $1M, with $500K down. Afterwards, I sell the relinquish property at $450K, free and clear. The $450K will be returned to me as payback of my loan to the intermediary, without trigger any capital gain taxes, right?
Say, 3 month later, I decide to do a cash out refinance of the replacement property at 75% LTV because the rate is lower. Assuming the property still valued at $1M. The current loan is $500K, and I will get $250K out. Will this cash out has any tax implication on the 1031 exchange already completed?
I really appreciate your comments.
Angela
Post: Cash Out, Sell or Stay Put?
- San Diego, CA
- Posts 9
- Votes 6
I have a condo as a rental with minimal loan balance in San Diego. I bought the unit about 10 years ago and it has appreciated nicely. ROE is not that impressive with around 3.6-3.8%. Basically the equity is generating return worse than the T-bill.
What should I do with the equity on paper? I have 3 options.
1) Cash out refinance with above 7% interest rate. Use the cash out as down payment to buy another property in San Diego.
2) Sell the property to do 1031 into a bigger and nicer San Diego property. 10% of proceeds will go to renovation, agent fees and etc. Losing the low property tax. But compare to Option 1, it will allow more funds on the next property.
3) Stay put. The housing price is so high compare to the rent. The cash flow of the new property from Option 1 and 2 will most likely be negative, unless putting a big down payment. The 3-4% ROE is just the way it is in San Diego. But with Option 1 and 2, can use the deprecation to offset some rental income. Would need the deprecation to offset the income after the loan is paid off.
Would appreciate your comments.
Post: Run into issues with rentals in Indianapolis
- San Diego, CA
- Posts 9
- Votes 6
Thank you for all you replies. I think those are great points. I was really hands off with the screening process. I thought if he manages 50, 60 properties, he got to know what he is doing.
I definitely need to be more involved of tenant screening going forward.
If you guys have good experience with any PMs, I would really appreciate it if you could share it.
Post: Run into issues with rentals in Indianapolis
- San Diego, CA
- Posts 9
- Votes 6
Hello everyone,
I am running into some issues on my out of state investment in Indy right now and would appreciate your inputs on the situation.
I am from California. I bought two SFH in Indy this year through an agent from MLS. Both houses is at $65-70K price range and according to the agent are in B- or C+ neighborhood. The house is at East of 465.
The agent has his own property management company and he manages those two houses for me. According to him, he manages around 50-60 houses.
Both houses are rented for $950. Both tenants started not making rent payment after 3 month. One of the tenant already went through eviction filing before and managed to pay eventually. Both are undergoing evictions right now. Court date is end of Oct and beginning of Nov. The agent said of all the houses he manages this year, he had 4 evictions so far, including the 2 from me.
I think something is not right here. Even thought I expect there might be some bad tenants, but not at 100% eviction rate. Tell me I am not that unlucky.
This is my first out of state investment experience and I did not expect it would go that wrong. I don't know what I should do next.
I have started looking into other PMs. But am really afraid of another bad experience.
I would greatly appreciate if you could provide your inputs on how I could get out of the current situation.
Many thanks.