All Forum Posts by: Account Closed

Whenever someone invests out of state, they need to be prepared to manage those properties from afar and possibly file tax returns in additiobal states.  I would ask him first what his major concern is then go from there.  

Hi Burke,

She really should be able to do this without paying any tax.

There are several things to think about in this strategy and several ways to go based on a few unknowns not listed in your post.

If you replace the same debt % ....no mortgage boot

The fix up question really depends on how much you need to spend to ready it for sale and how long that might take.  If it will sell quickly with just a buff/clean up as is might be the better way to go. 

Make sure you meet your debt replacement in the new property or you will have mortgage boot .....ie if the property you are selling is at 50% debt, you need to go in to a replacement at 50% debt or higher...or get creative with multiple properties at different debt amounts to average at 50% or higher.  You might benefit from talking to a strategist about what you ultimately want to accomplish so you fully understand your replacement options.  There are actually MANY ways to complete an exchange.  Give @Dave Foster a call to go over the exchange - that’s the first place to start.  He can help you get your numbers correct so you know what you need to look for.  It may be more simple than you think.  

1031 if you don’t need the cash now, that’s a lot of tax to pay.  Talk to a good QI like @Dave Foster for that part of it and then start looking at potential replacement options, including real estate securities (DSTs, TICs) if you are accrefited and pure real estate deals (single owner).  If you talk to the right professionals, you’ll be able to identify several strategies that will meet your future cash flow and exit strategy goals.  It’s a bit much to go into on a post.....  PM me and let’s have a call and I can give you a few ideas.  

Buy low sell high....whenever you buy high its a risk.  Don’t over leverage, keep investment property debt down, as close to 50% debt As you can.  

Hire an attorney to structure this properly for everyone involved.  Potential problems off the top of my head are....

1. What do you do if one investor wants to 1031 out if this?  Can they?

2.  How will revenue be split?

3.  What is your role?  Are you compensated?

I agree don’t over legalize it but in order to know if you are over legalizing you need to understand the law.  You don’t want to learn what you should have done, when one of your investors is suing you.  

Start with a conversation with your QI, @davefoster is great.  Then look at replacement option strategies before you list it.  When you are set in what you want to buy....list it.  

@Tony Castronovo check with your QI on how they will view the properties....@Dave Foster can clarify possibly.  You will want to make sure you do it correctly for your exchange.  

@Dave Foster couldn't she take the $15-18k out at the exchange and just pay tax on thst to pay off her improvements?  

@Krista Roodzant asking Dave a question for you there (:  if you decide to do an exchange, look for and think through replacement options before you list it so you have your strategy in place in case it closes quickly.  

In some cases on the 3 property rule, listing the 3rd option as a 100% sure close can be a good strategy.  Then if one and two fall through you can still complete your exchange.  For accredited investors, DSTs can work for that scenario.