All Forum Posts by: Vince Light

@Whitney Nash Thank you very much for clarifying and explaining this... This gives me a lot to consider and think about.

@Melissa Hartvigsen Thank you for passing along the information and your experience. It is helpful! I’m in Texas so mo income tax, fortunately (but don’t get me started on property taxes!)…

@Jon Taylor Thanks for your response. I am not looking to defer all of the taxes. That $90k debt I referenced is not mortgage related. So that’s why a partial 1031 is being considered.

Based on both answers, it sounds like gain is reduced only with the amount of gain spent/redeployed into another like kind purchase… Right?

How does the total cost of the new property play into a partial 1031?

Hello everyone!

I am looking for some help trying to wrap my head around the complexities (to me, anyway) of a  partial 1031 with boot being pulled out. Here is the situation...

Currently close to closing on the sale of an investment duplex property in Texas. We did a cash out refinance on this property a couple of years ago and used the proceeds for both improving the duplex as well as acquiring and setting up a separate STR. That STR resulted in some resulted in some extra debt that we are now selling the duplex for in order to clear out from. We chose to sell the duplex and have a buyer... So not questioning the wisdom of selling that (I know it is horrible timing but it is what it is). That sale is going to result in a hefty gain since I have owned the property for 20+ years.

The basic numbers are:

Original 2001 purchase price: $155k

Sale price: $750k

Current mortgage to pay off: $315k (included approximately $100k original balance due plus $230k cash out) 

Amount due to me after sale: $345k

Additional debt to pay off: $90k

I am also planning on keeping an emergency fund cushion from the sale proceeds.: $TBD

So after laying all this out there... I am trying to figure out a 1031 into a new property fits into the picture... 

My understanding of 1031 with a boot is that the boot is taxed. The costs to sell and original $100k from before the cash out refinance are not taxed (I know additional improvement expenses and such can also be deducted but will deal with a tax professional for that). For the sake of simplicity, let's just say I will have a $550k gain. 

Let's say I want to use some of the remaining proceeds to put a 20% down on a $350k property ($70k). would the new $350k debt be deducted from the $550k gain for calculating 1031 tax savings? Or would only the $70k I put as down payment? If I am only re-investing that $70k from the gain, what are the tax ramifications?

See there... I just got my brain tied in knots again trying to figure out how to even explain the s(h)ituation...

Any help in clarifying would be greatly appreciated.

Vince

@Aaron Gordy Many thanks!  This information is fantastic.  My head has been spinning with the volume of information I am trying to soak up...  (in a good way)

@Alex G. That is a good point... Yes, I have been looking at conventional sources so DTI was out of range. These investor loans would work as well. I mentioned the cash out refi on the duplex... Our credit union offers a 3.6 rate for that. I can always do some fun-with-math calculations to see if there would be a nice balance of casho out plus the non-FNMA loan to cover the rest... Though, that'd leave me with a higher amount invested in from the start. Speaking of which... Do the lenders you referred to require at least 20% down? 25? Something else?

@Aaron Gordy Thanks for the input!  I don't even know what would be going through my mind if I made the same sale only to watch a resell later like that...  I appreciate you sharing your experience.  I know I have a good thing...  It is just hard to know whether there is more benefit in holding vs selling.  The fact that I can rent the place out very quickly is also a plus.

How are you all handling the DTI in buying second, third and fourth investment properties?

Also, for those that are brokers/agents, how much harder is it to sell a fourplex versus a duplex?  Having a second building with four doors instead of two seems appealing...  However, if considering future 1031 upgrades to gain doors, how much faster do duplexes sell when comparing to quads?

@David Ripplinger Thanks for recommending the books... I'll have to add those to my list. I'll be interested to see how your deals work for you. I know that, for me, the thought of not being able to easily take a quick drive to check on the property or property manager is the major hurdle (a bit of a control issue, I suppose). I'm still working a full time job plus what seems like a full time job in parenting two energetic kiddos with my wife. I suppose an additional perspective on how BRRR works for people living out of town works out is another bit of research to consider.

@Jacob Pereira Thanks for your response as well.  How recently have you acquired your properties?  The Austin market has gotten to be so expensive.  Part of what triggered my attention was a nearby duplex selling in the 600s and I was floored (granted, it's the SoCo area, but still).  I might take you up on the offer of a brainstorm drink...  It would be nice to get some experienced perspective.

Hello BP!

I am pretty new to BP and I am more of the lurker type…. However, I am struggling to formulate my plan for financial independence and feel like I need to seek out some outside view points and opinions…. As I mentioned, I am pretty fresh to BP but have been soaking up via forums, blogs, podcasts and audio books.

First, let me go through some background…. I live in Austin, TX and 19 years ago my Dad was smart enough to urge me into buying a duplex (house hacking, essentially). I lived in the place for a while…. My future wife joined me there for a bit…. We moved to our first SFR for future family space…. Ended up selling the SFR and moving to our current home thanks to awesome appreciation in town. Since then, we've had kids and all kinds of career and life changes. Now I am 45 and still have the duplex but waking up to the realization that I've wasted many years in not building a portfolio to support retirement years and beyond. After reading and listening, I've realized I've made some mistakes in managing and saving…. Though, overall, I count my blessings and am grateful for what I have.

So, where am I now? The duplex is in a great central part of Austin, TX and value appreciation and rent increases have been good to me. I owe about 99k and a realtor said it could easily sell in the 575-600k range. Rents are a combined $3350/mo and payment of around $2000/mo (with appreciation comes insane property taxes). I’ve been self-managing the property all along and been very fortunate to have quick turnover whenever a tenant leaves. I have had to do some updating and repairs to the duplex in recent years so any cash reserves are near depleted. We do have some savings but those are for the family and primary home…. As we’ve also had medical bills, kid costs, daycare for one more year, etc.

So now I am trying to figure out the path to getting more doors through more multi-family properties (du-, tri- or quad-plex). At first, I entertained the idea of selling the existing duplex to get a quad…. Or two duplexes. However, then I started questioning why I would sell a great cash flowing property with only 13 years left on the mortgage. Texas law forbids a HELOC on an investment property. So then the idea of doing a cash out refinance on the existing duplex to get enough money for a 20% down plus rehab money for a second multi-family property as well as around 50k to handle some more updates to the existing duplex and have 30k left over as a repair and CapEx fund boost. Yes, I'd be paying around 3.6% to have cash sitting in the bank…. But waiting to save up enough for a down payment would just set me back too long. Is this idea crazy or dumb for one/more reasons?

An additional challenge would be meeting a 45% DTI with a third mortgage. My rough figures would put me in the 49-52% range.

I will say that I’d like to keep my investments around Austin for now. I know the population/job growth is strong and I know the area well as well as rent ranges, etc… So investing out of town is…well… scary to me.

My wife and I are also at a point right now where a major drop in income would hurt our current path of paying down debts and cards built up over years of life stuff.

So all this being said, what would you all do in this position?

I try to pre-lease in order to minimize time without collecting rent.  

This past year I had both sides of my duplex go up within a few months of each other.  In one I started posting availability 4 weeks out from end of the former tenant's leaving and got an immediate response from many interested parties and had it leased within 24 hours.  In the second unit, the former tenant gave 3 month's notice so I started posting availability about 9 weeks out...  I had the hardest time getting it leased because people who were hunting for a place needed it available "end of this month" or right around there.  As we got closer to the end of the former's lease, I FINALLY got it leased.  Not sure if this was all because of timing of the two (first one available June 1, second one available in early August) or the result of me trying to pre-lease too early on the second.