All Forum Posts by: Burke Ericson

Hello, this is my first thread and I will soon be attempting my first 1031 property exchange, hopefully in a few months once I line up a sale.

I will have roughly 1M to reinvest and current plan consists of targeting cheaper rental properties that have a potential gross monthly income of $1,000 for each $100,000 invested. I have determined that there are many markets where I can buy a 100K house and expect around $1K a month rent. My idea was to not only acquire houses with this ratio, but to target turn key houses with equity (lower the market value) at the get go. For example buying a $130,000 home in Texas, for $100,000, in an area that has $1,000 a month rent. Upon planning and researching, this idea seems to be a good idea, but I am new to this and I wonder if there are any logical details I am overlooking with this basic approach?

My biggest concern is potentially identifying 20 $100,000 homes in 45 days (based upon the 2X exchange rule). I am wondering from you experienced people, is there a common way to lock the potential "identified homes" into a contract where I can have them committed to selling to me if I wish?I know options contracts are common in many endeavors, but I not sure if they are in this case, if they are legal or if the cost is prohibitive. IF such a thing exists, what are typical terms and the cost of reserving the rights to a 100K home? Can I potentially use boot to secure these option-to-buy contracts once I close on the property I am selling?

Also, I know foreclosures are scary to bet upon, but do any of you know a way to use a 1031 to secure foreclosures with less risk?

Thanks all,

Burke 

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Bill, can the person who sells the relinquished property use funds from the exchange while the title is parked?

In my case I want to exchange into a bunch of lesser priced properties, but I want to ensure I have funds to fix up or repair the new properties. I was planning on reserving "boot" to pay for these expenses during the acquisition process, but maybe these expenses can creatively structured into the exchange? 

Thank You

 As far as Cash flow and appreciation. Cash Flow: You might consider doing a partial exchange, this means that upon beginning the exchange you can decide to reserve some of the proceeds from the sale, which is called "boot", a 1031 exchange professional can structure this for you. The only consideration with boot is that you have to pay taxes on that money... From what I have learned this rate in an extreme case can be taxed at $35K for ever $100K reserved in boot. While this is a steep tax, IMO it is better to hold some reserve until you can establish cash flow. If you work this into your overall strategy, you can simply plan to find stronger deals or take risks that you cannot take when you have no reserve. The appreciation of your new property is what it is, it will impact your property taxes, but you can plan to trade up your exchange (an even more expensive, revenue generating property) after a couple years which is part of my strategy at this point.

Robin, I am new to this too, but I have been doing research and figuring out a good strategy. In my case I have to exchange 1M in property and the best ROI I can figure is investing in markets with super cheap houses and reasonable rents. I have found some places where I can buy a $100K house and get $1250 a month rent which is a very good ROI. I really suggest you spend time looking on Zillow and learning about the different house to rent ratios in larger cities in the country. This will help you understand how to think about it and find out good places to invest. Also, because I am gonna be closing on 10 or so houses I plan to have the properties professionally managed which is the only way this kind of disposition makes sense IMO.