All Forum Posts by: Scott Wolf
Scott Wolf has started 43 posts and replied 1799 times.
Post: NY Real Estate Attorney
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Karell Nixon, where in NY? It's a big state! If you're downstate, Henry Graham is great!
Post: How do I get financing for CLE, OH duplex regarding my situation?
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Mike Schorah, a DSCR loan would be a good place to start. It may be an issue with such a low price point, but the turnkey company you're working with may have some lenders they've dealt with in the past.
Post: Financing Up in the Air
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Louisa Seales, where is the property? A bridge lender may be able to help you out. When are you due to close?
Post: Pledging Brokerage Account vs. Using Cash for Downpayment
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Isaac Hayes, depending on how much you have, your bank may be able to give you a line of credit off of the amount in your account up to 70%. If they don't offer that, I can offer a referral to a financial advisor that offers that.
I use my account all the time to invest in LP's and also used it as the DP for my own personal home purchase.
Post: 1031 exchange or show income for bank loans
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
Originally posted by @Joe Splitrock:
Originally posted by @Clayton Smith:
Originally posted by @Joe Splitrock:
Originally posted by @Clayton Smith:
I purchased a property earlier this year that was in terrible shape and I believed it was a teardown so I got it for the land value. I planned to BRRRR the property. I cleaned the property and lot up and repaired the structure and it was not in as bad as shape as I originally thought. I got a cold call from a fellow investor and I threw out a high purchase price and he agreed. So I stand to make just under a $25k profit selling the property. I started my LLC last year and this will be the first time I show income and would like to finance my deals based on my LLCs income and not personal in the future.
My question is do I show the income on my taxes to help with loans or do I 1031 exchange the property and defer the taxes? Since I just bought the property I have not claimed any depreciation. This will be my 3rd flip this year so I will show around $75k in income plus my rental cashflow. Just want to get some advice on how to move forward. I have talked to my CPA and he said since the buyer contacted me unsolicited it will meet the 1031 rules on intent of the investment when purchased. Any advise would be great.
You cannot 1031 exchange a property that was never held for investment. Your CPA is giving you very risky advice that goes against legal precedence and common advice. The facts in this case do not support intent.
1. You are a flipper who has flipped three properties this year. This is your business and pattern of behavior.
2. You never placed the property in use as a rental, you never claimed deprecation and you never received rental income. It was never held for investment, not even a day!
3. The IRS has stated that two years is safe holding period for doing a like kind exchange. Some people push it down to one year, claiming two tax returns. You held this property less than one year and it was under rehab the entire time.
4. Receiving unsolicited offers has nothing to do with intent. Every investor in the world is getting unsolicited offers for properties. Every flipper is being asked "do you have other properties". Assuming your CPA is right, EVERY flipper could do 1031 on every property just claiming intent if they sold it off market. That is obviously not correct.
All of your behavior patterns show this was a flip. Regardless of what intent you try to claim, your behavior is what matters. The IRS doesn't need to prove you are lying, you need to prove that you are telling the truth.
I guess I should have included some more information about my past investments.
I have flipped 3 properties this year, my first flips, but I own 15 rentals. I am currently renovating two other rentals that I will hold for an investment property. I have also BRRRR'd properties in past years. I got a renovation loan on the property that will convert into long term financing once renovations were complete. I have not claimed depreciation because I just bought the property in April. I am not very far in the renovation but I have emails with my property manager talking about how much to charge for rent based on adding an additional bedroom. I understand the IRS guidelines on the 1031 but I believe my behavior does show that at the time of purchase I intended to hold long term. That is why my CPA gave this advise.
It doesn't change my answer, because you are not satisfying the requirements of it being "held for investment" which the IRS has said short term is not sufficient. Less than a year is short term by all standard. The IRS has stated that a time period of "two years is sufficient". You also received no investment income, so your entire financial gain from this sale is due to value add (flipping). The rules say it doesn't "apply to any real property held primarily for sale". If you had no rental income, what other purpose is there than sale? Intent doesn't matter. The word intent isn't in 26 US Code 1031.
I don't know if you will get audited, but if you do, this is very questionable at best. The burden of proof is on you and "my CPA told me it was ok" is not a defense. I am not trying to argue with you. I am genuinely trying to give you safe guidance here. It would have been better if the property was rented before being sold, because that would have show actual investment use, even if the time period was shorter.
I think your CPA is giving you good advice. Since BRRRRing has been part of your business model in the past, and you were called unsolicited, your initial intent was to hold the property, the IRS might allow this 1031 exchange to go through. Some attorney's I've worked with have done similar 1031 deals that have held up. I would consult more people though. My firm has a 1031 arm if you'd like to speak with the team.
Post: Insurance in Florida
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Kyle Keller, Bob Peppe from Flagler Insurance may be able to help you out.
Post: Can you pay Cash For Keys of Rent Controlled Apts in NYC?
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Josh Edwards, while it is possible, the laws have changed regarding how much you can raise rents based on apartment improvements. I'm also 99% sure that apartments don't automatically become free market when an RC tenant leaves. There are many governmental hoops to jump through. I knew them better when I was a RE broker. I can probably find someone in my network to help explain how to get apartments out of RC/RS legally if you'd like.
Also, the amount of cash you'd need to offer would have to be very substantial. Some of the rent-controlled apartments are paying sub $1,000 per month for $4,000+ per month apartments.
Post: 25% ROI on $50k back in 30 days 40% LTV 1st line position
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Steve S., I see. This is interesting to me. My email is in my signature.
Post: Real Estate Attorney
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@James Krell I know a great commercial attorney in Miami if you'd like the introduction.
Post: Pre Approval for multi family
- Lender
- Boca Raton, FL
- Posts 1,919
- Votes 933
@Corey Dussault, based on your post, it seems like you're talking about a 2-4 unit which you'll be occupying(since you'll be renting out your current primary). If this is the case, the lender will take a hard look at you as the borrower personally, but many will also include rental income from the property in their underwriting. A good broker is also still a plus on this one!