Buying a house that was a recent 1031 exchange - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on May 04, 2006 at 24:18:23:

Renewal of contract will be stated in the terms of the deal. In fact, when the seller and I crunched the numbers together, we agreed that 5 years would be borderline for cashing out. Short term appreciation is risky, but surely in 7 - 10 years this house will have went up enough in value to cash the sellers out.

My new proposal to the seller is 140,000 SP, either $1,130 per month (taxes and insurance included) and seller pays for all repairs or $1,030 per month (T & I included) and I cover repairs. These numbers give the seller a 7% ROI. Not unreasonable rates for an investor loan. This house may rent for more than $1,250, but I am low balling to cover my arss!

Buying a house that was a recent 1031 exchange - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on April 30, 2006 at 17:57:39:

Owner bought these houses using 1031 exchange about two months ago. Houses are held in seperate trusts. Can’t due a L/O or Contract for Deed due to triggering taxes. The owner says his lawyer sees no problem with us signing an agreement that will allow me to buy the properties at a future date (5 years with the option to extend). I would be included as a beneficiary in the trust to secure my interest. I mentioned 15% beneficial interest and the owner agreed. These will be rental properties for me. Has anyone ever made a deal like this? Any advise is greatly appreciated. Here are the numbers on one of the properties:

$140,000.00 Purchase price in 5 years
$147,000.00 FMV
$1,130.00 Monthly payment to owner
$1,250.00 Fair Market Rent
$ 0.00 Down Payment!!!
$162,000.00 Projected FMV in 5 years

Re: Buying a house that was 1031 - Posted by dealmaker

Posted by dealmaker on April 30, 2006 at 21:16:17:

This is a GREAT DEAL for the seller, not so much for you. Your MAXIMUM GP is $120/mo, $1440/yr. One month empty and you’re losing money. Who’s responsible for maintenance, repairs, insurance etc?

BTW, it sounds like the “agreement” that you are signing is, in fact, a lease/option. I’m not an attorney though. You will be renting the place, and you’re signing an agreement to purchase at a price certain, in the future. You guys may not be calling it that, but if it looks and walks like a duck, it probably quacks.

BTW, what is going to change in 5 years that he won’t mind the tax hit then?


Re: Buying a house that was 1031 - Posted by Kevin (TulsaOK)

Posted by Kevin (TulsaOK) on April 30, 2006 at 22:43:07:

Thanks for your thoughts. We have agreed to split the cost of a home warranty which would cover any moderate to large repair. Insurance and taxes would be on the owner (maybe 15% of those expenses would be on me due to my beneficial interest?). The house is in very good condition (was my neighbors house for 30 years, original owners) and was very well maintained. Yes, I realize that if the house sits vacant for one month, I’m just breaking even in cash, but I will have gained $4,410 in equity (3% low side). Plus, this equity was gained with zero dollars spent. A 15% interest in the trust gives me $22,050 interest in the house immediately, and will grow as the house appreciates. All of this without one penny OOP up front. In 5 years, they will just do another 1031 exchange to keep Uncle Sam at bay.

Re: Buying a house that was 1031 - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 03, 2006 at 08:59:55:

What happens if there is NO appreication? Then what?