All Forum Posts by: Michael Klinger

I am evaluating multi-family purchases for a 1031 exchange ( I sold my office and now planning to exchange into multi-family). There is a property that otherwise "looks good to me on paper" for a portion of my exchange. The broker shared inspections done by a potential buyer who walked away due to their lack of stomach for the deferred maintenance. 

The 20+ units are 100 percent occupied. Inspection reveals that Air/furnace/water heaters are mostly original and all around are well-well beyond their life expectancy and many are original making them over 33 years old. A small count of them have been replaced as needed when they died beyond repair.

Long story short, The majority are destined to needing replacement as they go, one-by-one in the near future. This alone is probably eventually $5K per unit in the next few years. Or tomorrow. 

If there is $100K of system replacements in the near future, any opinions on how to structure that? Aside from making a offer that reflects this? And riding it out and pay out fixes at needed? And/or is there any merit/logic/stupidity to structuring the offer that has seller crediting back a Cap-X fund of $100K or so? So that it is otherwise financed in the deal with the mortgage I would get on the property, rather than tapping outside funds or borrowing secondary money? If I had funds already in place, I'd be inclined to make some pro-active replacements ahead of their failure, rather than having the replacements nickel-and-dime me to death.

Thoughts?

@Chris Mason

Great input. Thanks.

Thanks @Chris Mason for the input. 

Yes, the property that I own and either want to sell or leverage is a commercial office building.

Okay, so then the "strength" of my business would typically considered for the re-fi. Is there a case to make that the cash out is going out to a stronger opportunity in property #2, that just more expense to the literal business that occupies property #1?

I have an owner/user building that houses my business. There is substantial equity in the building, while simultaneously the business is no longer strong as it once was. 

My current plan is to sell (it is currenty on the market). If/when it sells I will likely close the business. "Maybe" move business  to a rented downsized location, maybe not. Then I plan to move the building proceeds to a 1031 purchase Multifamily and start a new chapter in my life.

If... I don't sell and I still want to get that equity working better for me, what are my re-fi strategies? Is there a reasonable scenario to re-fi cash out and use the cash out as a down payment on a new purchase? Is this done? 

Or is is ridiculous to use cash out re-fi money as your skin in the game down payment. I'd imagine most lenders are looking for a real down payment with real money, not money borrowed against equity on another property?

Please enlighten me.

I tried the suggestion of asking the listing brokers on two subject properties. Pretty fruitless actually. 

This is a very important expense item to make a decision from, But also probably a bit shocking in some cases on how much taxes will go up with a property transaction.  In other words, not typically a "selling point." But whatever ugly truth it may be -- has to be in the foreground. Next week I will call try the assessor office approach and see how it goes.

AH. Good info. Thanks.

Thanks @David Stafford for a solid reply.

In evaluating possible deals and given there are so many different jurisdictions and approaches to property tax assessments....

Is there an effective way to get a solid idea of how taxes will re-assess in a particulart jurisdiction once the property changes hands? 

I'd imagine you can call the jurisdiction and ask how it will be re-assessed. But I also wonder if getting a random person on the phone is effective or accurate or if there is a willingness to cooperate over the phone? And will their answer be accurate? Or will it be a big fat "it depends?" And so on.

I know exactly how it works in three jurisdictions I already pay taxed to. Just wondering how to manage this if I am looking at  possibilities going forward. Online resource that is one stop shop for such data?

Thanks that is the clear and concise reply I had hoped for.

Hello all,

I generally understand the 1031 rules and process.  I really not looking for a recap on the basic rules or concept. Got all that. Thanks.

However... In some Loopnet listing research I noticed that it's somewhat common to see  listing that is mixed. Such as a 32 unit plus a house in the same compound, or two adjacent complexes being sold as one. Or a portfolio hodgepodge of smaller buildings being offered as one package.

I also notice that some complexes that are seemingly one property with multiple buildings sometimes have several or separate parcel numbers for the purposes of property tax assessment and such.

Is there some guidance on what is "one" 1031 pick and what would count as more. I am assuming that a portfolio being sold as one is really as many properties as it lists in the portfolio. What about the other examples I gave?

Thanks,