All Forum Posts by: Bob Norton

@Steven L. In your situation, if you decide to sell your current residence within up to 3 years from when you switch it to a rental, then the capital gains will be excluded from your income up to $250k single and $500k married. You will have to pay tax on any depreciation recovered in the sale. If you transfer this property into an LLC, then you will pay capital gains, as only individual taxpayers qualify for the exclusion. If you purchase house 2 for your primary residence, then you may not want to put that in an LLC while you are living in it, so that you get the deductions for mortgage interest and property taxes, plus any homestead exemptions provided by your county or state. Hope this helps.

@Hailey Brown You should definitely talk to the intermediary who handled the 1031 exchange and find out how to fix the title issue.  Your partner's CPA should be able to enter the exchange in their tax program and defer the tax.  She would need to discuss the situation with her CPA to find out what documentation they need for their workpapers, which may include a letter from the exchange intermediary stating that they made an error and are in the processing of correcting it.  This shouldn't invalidate your 1031.  If you personally guaranteed the new loan, then you a probably stuck as guarantor until you refinance it.  If you decided to buy her out, then you would count the buyout amount as part of your basis and that would negate any deferred capital gains for you related to her portion.

@Gabriel Manson You should visit NOREIA or the Northshore REIA, plus there are a few other meetup groups in the New Orleans area. You will find investors at those meetings that will be willing to give advice. The next Northshore REIA meeting is in Slidell tomorrow at 6:30p. Message me if you are interested and I'll give you the address, or you can look up their website.

@Joe Sampson The debt you paid on the sellers behalf is considered part of your cost of the property, so it will reduce your gain on the sale of the property.  This is treated the same as if you purchased directly from the sellers and paid them a higher price at closing that included the back taxes they owed.  

@Assaf P. You should speak with a real estate attorney in your area. You should be able to setup an LLC as a single-member and quitclaim your property into the LLC, after you have purchased it. You will not have to change your loan on the property, as the LLC will be taking over the property subject to the existing mortgage. So, you will still be the guarantor on the loan. CA has a hefty minimum franchise tax for LLCs, so you'll want to take that in consideration in your cash flow analysis before purchasing the property. Hope this helps.

@Morgan Wells I'll answer the CapEx question. You need to find out the age of each major system in the building to determine its remaining useful life. Then find out how much the replacement cost of each system will be. Replacement cost divided by remaining life in months will tell you how much you need to set aside each month to replace all the systems when you expect them to die. This is called a reserve study. You can Google "Reserve Study" to find some examples that you can use to model your analysis. Hope this helps.

@Ryan Nodurft You're welcome! As for the BP lease, make sure you have a Louisiana attorney review it. You could check out the website for Northshore REIA, we had a property manager speak back in Feb 2019 and his sample documents, including his lease, are available on the website.

@Ryan Nodurft In Louisiana, if the tenants did not record the lease, then you can cancel their lease when you buy the property.  Most residential tenants do not record their leases.  However, you should get copies of the leases and review them as part of your due diligence to see whether or not you agree with the terms.  I think you will still need to give the tenants a notice that the lease terms will be changing if you require them to sign a new lease.  You can honor the existing leases if the terms are acceptable to you, but remember that the leases were between the tenants and the former owner, so if you choose to keep the existing leases, you should consider getting them to sign an addendum that you are the new owner with new payments instructions and that all the other terms will remain in effect until the expiration of the lease.

Thanks for the clarification, Dave. 

Marc, I think you should hold the lot for a future build.  Complete the house you are working on now and get it rented.  This will help you get your next loan.  Check the numbers to make sure it would work as a rental if you build it.  If the area is as hot as you say, then the price of the lot will increase over time, so you could always sell it for more later, if you decide not to build.