All Forum Posts by: Nathan H.

 @Jeff Copeland thanks for your response. I'm not an expert, but The Code says you must have a transfer of the benefits and burdens of ownership for a valid 1031. I'd agree this is typically through a sale, but I disagree that this is the only way. I'm willing to accept I could be wrong on this. Like everything else in RE, this is highly nuanced. 

Hello BP Community,

I’m working through structuring a creative real estate deal and am wondering if/how I can exchange the proceeds.. 

I bought a house with appx $120,000 of 1031 money + about $55,000 of additional funds for with a 700k purchase price. I’m now wanting to sell that house and 1031 again. My best offer is a creative deal with someone buying the house subject to the mortgage or wrapping it and paying cash for my equity. I don’t understand the risks of this well enough, so I’m going to propose a master lease option instead with similar terms to simplify things. 

If I can make the risk of loss pass to the buyer with a lease that has sufficient terms, can I 1031 exchange the option money? I know option money isn’t typically taxable until the option is exercised, but I want it to be taxable prior so I can 1031. Does anyone know how this is achievable, or am I looking at this the wrong way? Maybe there’s a better way to do it.

Thanks in advance 

Hi BP community. 

I have a MHP in Casper WY. I have a handful of park owned homes that I would like to sell on contract for deed. I would also like to sell the park as a whole but remain the owner on the mobile homes that are on a contract for deed, and collect that income. I know it is not typical and that usually the CFD's or seller finance loans would transfer to the new owner. I don't want to do that for several reasons, one being tax deferral. Any ideas on structuring the CFD's as to where I can sell the park, retain the CFD's and protect the new owner against lot rent default? Any experience selling a MHP and remaining the lien holder/beneficiary of a CFD agreement?

Thanks!

Hello BP community, 

I'm wondering if anyone knows how to treat interest expense on an investment property. The scenario is that the interest was accrued in prior years, therefore not deducted, but was paid upon the sale of the property. I have a seller that was highly leveraged with HM loans that accrued a ton of interest that he couldn't pay until he got proceeds from the sale. The sale price was $600,000 ish and the interest he paid to his lenders at closing was about $150,000. During the year of the sale, it was not rented or actively marketed. 

I'm hoping it would be considered an expense on Schedule E, therefore creating a large loss against ordinary income (I believe he qualifies for "real estate professional" status). If deducted in prior years, when accrued, that is where it would have ended up. However, I'm concerned it may be considered a selling expense since he didn't receive any income from the property in that year nor did he attempt to. In that case it would go against the gain (not ideal). Let me know any thoughts. 

Thank you!

@Kyle Mccaw and @Cameron Moore thanks for the info! Sounds like insurance is a simple solution. I think the offset of the asset (it will be secured by the property) should be an obvious offset, however Fannie and Freddie have a hard time understanding a schedule C let alone a creative RE deal. Do either of you know if there is any nuance to counting a note as income? For example a minimum length of history of payments. 

My concern with it getting called is if the new owner can’t refi without putting in more cash since they’ll have 15% in, not the 25% required for 2-4 unit investment properties.

Hi BP Community,

I’m looking for some advice on a mortgage wrap deal I’m looking to do. I’m the seller and would be carrying the financing on a $750,000 duplex. The underlying mortgage is a conforming 30 year fixed and has a balance of about $500,000 so I would be wrapping that into a seller carry loan at about $640,000 and receiving $110,000 for the balance (15% down).  Buyer is as quality as it gets, so my concerns aren’t with a default. If anyone has any experience they’d be willing to share with mortgage wraps, I’d love to hear about it. My specific concerns include the following:

- Will it hurt my ability to borrow from conventional lenders since I'll have a liability but no asset securing it. Instead I'll have a promissory note and DOT. Not sure how Fannie and Freddie look at this.

- What are the odds of the mortgagor noticing the house has been sold and calling the loan due, assuming the payments continue to be made on time? What is a fair contingency plan for if the loan does get called? Buyer responsibility and seller responsibilities. 

- How does insurance typically work? If the buyer provides their own, I would think the lien holder would notice a change in the policy holder, especially if there was a claim. If it remains in the sellers name, the seller has some liability I’m sure. 

thanks in advance for your help. 

@Ian I Leinwand depends on the asset class and area, but as a broad answer, I’d say an 8cap would be what most buyers would get with C+ multifamily and most other types. Industrial is way overbuilt, so I’d stay away from that. Anything I’ve bought up there has been 12-15cap based on my all in investment, but that is because they were value add and came with significant risk and capital investment. I have a fantastic property manager, but she is up in Casper. She’s not trying to grow much, so I don’t want to post the name publicly, but if you’re looking for someone in Casper I’d be happy to make the connection!

@Ian I Leinwand Thanks for the info, sounds like a great project! I've had some run ins with the city on some pretty basic stuff on some Old Town residential and it was a nightmare. My fiancé is also waiting on a building to go up in Jesup Farm for her retail shop and it has been delayed quite a bit due to the city being slow and difficult from what we've heard, so I get where you're coming from. 

I should have clarified, that this project is in Wyoming. About 50% of my portfolio is up there now, half the competition and 2-3x the cap rate! 

@Jared Hottle Great thoughts, thank you. I used to work in public accounting and for a year or so almost exclusively worked with real estate investors (mostly syndicators) on historic and low income tax credits. Great stuff to know about. That's great advice to look into grants, I haven't done that yet. This place should have no problem getting Historic Rehab tax credits though. 

Also, sorry I should have elaborated. The property is actually in Wyoming

Thank you for your response!

Hello Everyone, 

I came across a potential opportunity to convert a nice brick warehouse into some loft-style apartments. I'm a very active investor in the area, so I know this works as far as financing, zoning, parking, demand, ect.

I've never done a similar conversion, so I don't know a good baseline to determine the costs of doing this. From what I know (of course to be confirmed through due diligence), there are no environmental concerns, asbestos, structural issues, ect. If I find out there are, I'll reassess. 

For now I'm trying to get a rough estimate of conversion costs as far as ducting, plumbing, electric and final finishes. Wondering if anyone has done a similar project and what their approximate per sqft reno cost was, not including things such as exterior and roof, structural, environmental remediation, parking lots, security, ect. The building is in great shape overall. 

Thank you!