Can I Sell A Property To Myself? - Posted by Carmen
Posted by Carmen on May 18, 1999 at 14:58:52:
This may seem like a strange question, and since I’ve never done it, I wonder if anyone has experience in it. I am interested in creative, but not “overly” creative venues, in which to take cash out for fixup and this came to mind - what would be the repercussions, if any?
Sorry if this gets convoluted - it made sense when I read it.
I have 2 funding sources - 1) hard money (65% LTV max, loan on contract amount, no rehab $, close in 1 week) and 2) Semi-investor loan (80% of value of property; 5% of loan value as down payment; first cut is paid to seller at closing for contract amount + costs; difference held in escrow and paid directly to contractors as repairs are done, and the difference given to me after repairs, once appraisal comes in for FMV)
The easiest/fastest way to get a loan is hard money; however, it does not give me any rehab money. Sometimes the other loans take much longer, and since one strategy which seems to work well is to use a quick close to induce a low price, it may be worth it to go hard money, if I can then get the money out to rehab with.
QUESTION: Other than the double closing costs, would there be any issues if I purchased a home with hard money in my name, or the name of one of my corporations, then immediately sold it to another of my corporations or my husband’s corporation at a higher price using another funding source - which may take up to 30-45 days to close? Is this just an “internal flip”?
*** I understand that of course, it would be simpler to just purchase with the investor loan to begin with, but I’ve had a few deals fall through when the financing we originally tried to get didn’t come through, or it just took too long to get all the paperwork done, so I’m looking for options. ***
Maybe an example is in order:
Purchase Price $45K
Repairs $ 8K
Use hard money to purchase at $45K.
Sell it to corp. with 80% FMV semi-investor loan (64K total loan, with $3,200 down). Do not pay off hard money yet.
Have investor loan pay for the repairs (8K)
Collect remainder of investor loan in 3-4 weeks (after repairs)
Pay off hard money loan
Sell house, collect rest of cash.
This gives, at the time investor loan cashes me out:
$60,800 + closing costs - Investor Loan (64K-3,200)
$50,200* Minus Sale Price to self
8,000 Minus Repairs
2,600 TOTAL NET AT "PURCHASE"
17,200 TOTAL NET AT “SALE” (80K - 60,800 - 2K closing costs)
19,800 TOTAL NET PROFIT(not including holding costs)
- Sales price to self used to pay off 45K hard money loan + 2K closing costs, and recoup 3,200 down payment)
Does this sound right? Other than finding a great lender who will close in 2 days at 100% FMV, what other options would I have to do rehabs quick-n-easy? And don’t forget the original question - can I sell this property to myself in this way?