Holding your rehabbed property for a year

[Mauricio Hernández]

Would it be wised to hold your just remodeled flip for a year to qualify for 1031 what do u think are the pros and cons?

[Shane Johnson]

Obviously if you had a lease in place, you could make it work.

Pros -tax savings is substantial.

Cons - must be skilled to find another property and get it executed within the necessary time frame. Capital tied up for a year, there is an opportunity cost to that. (aka you cant use your money to buy more property)

Whats the FMV of the home? The basis? The gain?

Here's a really quick and dirty example.

Purchase - $60k
Rehab - $30k
Sold price - $120k (110k yield at 8% closing./comm)

So you are left with 20k taxable profit. at 40% overall tax that leaves you with 8k tax liability, and $12,000 profit.

It comes down to this, based on these numbers, is it worth it for you to wait 1 year to pull your capital out, to gain an extra $8,000 ?

Or is it better to sell it as fast as possible, and maybe do 1, or 2 more deals in the same year, with that same capital. If you replicated this model 2 times with the same capital, you now made $36,000 instead of only $20,000.

So you can see where I am going with this, if you are a serious flipper, move it ASAP and keep going. However, if capital is no issue you could consider holding a year.


Last piece to the puzzle. Appreciation. Will it be worth more in a year? Will it be worth less? This is a very important piece in itself, that you would have to gamble on.