OK, now what do I do? - Posted by Anabel

Posted by Taiyo on April 03, 2004 at 21:09:44:

There is no time constraints in doing a 1031 exchange. I am a flipper and I own my properties for 5 minutes. I would be very careful in doing one. It is not hard to sell. It is very hard to buy. You have six months or April 15 (tax deadline) which ever is less to buy a exchange property. If you have to close your sell escrow, use a Accomadator to hold your monies. If you have control, you owe IRS.

OK, now what do I do? - Posted by Anabel

Posted by Anabel on March 25, 2004 at 19:37:58:

I bought a house for $100K. The seller paid closing costs. I cleaned, painted, put in new carpeting and re-did the landscape. It cost me about $4K and took two weeks. The house was then re-appraised at $120K. A mortgage broker told me I could re-finance, with a 3/1ARM at 3.625% or I could get a second mortgage or take out a HELOC. No seasoning needed because of my credit score and I could get 100%. So I’m going go that route and take the equity. Closing costs will be $3,600. So my profit after all this is $12,400 ($20K equity minus $4K for repairs minus $3,600 re-fi closing costs). Small potatoes, I know, compared to the guru’s here. But it is an extra $12,400 I did not have and it was very easy to make.

So my question is this. I’m not sure I want to be a landlord. I could make a positive cash flow of about $200 a month, but I work full-time and don’t want the headaches. I could re-sell the property and pay 30% capital gains. What are my other options?

Re: OK, now what do I do? - Posted by GP in Seattle

Posted by GP in Seattle on March 26, 2004 at 20:20:29:

I’m sorry to be a wet blanket, but it’s a little late to be asking this question. You should determine what you are going to do BEFORE you buy, so that you know if your strategy will pencil out (i.e., be profitable). You haven’t “made $12,400”. If you wanted to just take your money out of the place, it will cost you anywhere from $4K to $15K to liquidate it (straight sale), including holding costs. Even then, you might not be able to get a price of $120K.

The lease/option route is probably the best way for you to make a decent profit out of this one. It has its hazards, but it minimizes holding costs and sales costs. Good luck.

Re: OK, now what do I do? - Posted by MO in SC

Posted by MO in SC on March 26, 2004 at 11:58:18:

Hi! Good going! Have you thought about a 1031 exchange? It’s a good way to keep from paying taxes right now. I heard someone speak at our CREIA group, and he led us down the path of buying and 1031’ing homes for many years. His question to us, his audience, was “What happens when you want to retire and sit back and enjoy your life?”. Of course, we all thought that the tax would then be due on the gain of the house you would sell. NO…roll your final rental property into a home that YOU love, rent it out for a couple of years, then move into it! When, if, you sell it, personal residences are exempt from gains taxes up to $ 250k or $ 500k (married).
Sorry this is long, but I thought it was great thinking!

Re: OK, now what do I do? - Posted by David Trammell

Posted by David Trammell on March 26, 2004 at 07:07:16:

You could lease/option the property for a few years. Tenant/buyers make monthly payments plus they do their own maintenance, then after 3 or 4 years, they cash you out.

Re: OK, now what do I do? - Posted by Barry (FL)

Posted by Barry (FL) on March 28, 2004 at 10:06:55:

You could also refi on an interest only loan for a short term to really crank up the cashflow on a L/O.

Re: OK, now what do I do? - Posted by Mike (Woodinville,WA)

Posted by Mike (Woodinville,WA) on March 26, 2004 at 23:08:16:

Newbie question: What does “seasoning” mean? Thanks!

Re: OK, now what do I do? - Posted by Barry (FL)

Posted by Barry (FL) on March 28, 2004 at 10:04:49:

Good thinking, although I believe to do a 1031 exchange he has to own the property for at least 1 year.
No reason he can’t lease option it though for a period of time and then 1031 out of it.

Hope This Helps,
Barry (FL)

Re: OK, now what do I do? - Posted by Tillman (DE)

Posted by Tillman (DE) on March 28, 2004 at 07:24:04:

Seasoning means holding the instrument (property, note, etc) for a length of time. Some lenders require a property to be held by the same owner, or ‘seasoned’ for a year. Notes typically sell at less of a discount after they’ve been seasoned (paid on time) for six months.