1031 conversion.. help!

[Matthew Keyes]

Hi all!!!

So I will try to capture all the essential details while being brief as possible.  A recent situation/opportunity has presented itself to my family in the past 10 days.  That research has brought me here, to the bigger pockets podcasts, as well as several books I have now bought to learn as much as fast as possible.  So here I go...

So my wife’s parents recently received an unexpected offer (the house wasn’t even on the market) on a home that was inherited for approximate 1.7 million dollars.  That amount has to be split with a sibling and I believe will leave them with approximately 700k to which they would owe capitals gains tax (this I knew, they had no idea).

So I looked around I found out they could do a 1031 exchange fairly easily.  They mentioned it to their lawyer, who told them they could do it as long as it was a rented it for 5 years, at which point they could live in it full time.  Unfortunately,  they are very complacent and also know nothing about investment of any kind.  They would be happy to take this route and not “risk” anything.  However, I feel like this is a huge mistake and would like to convince them otherwise.  From what I can tell they could easily buy and hold property and return 10-12% while using a property management company.

Any advice from those more knowledgeable than I?  Anything that might help me convince them that they have been given an incredible investment opportunity?

Best,

Matt

[Matt K.]

Double check, but pretty sure the cost basis can be adjusted (up) on a inheritance to reduce your tax liability.

With respect to investments, nothing is risk free nor is anything really passive.... with that said, a NNN or NN lease from national tenant could reduce that risk. Your returns will likely be lower than you expected and they won't be able to live in it obviously.... but from investor standpoint that's the end goal of many people to park their money.

From a house standpoint, chances are a 700k (or more) house isn't going to rent very well at all. Exceptions MAYBE in a metro or coastal metro, but again probably not all that great. This pushes you into more investor friendly properties but doubtful they'd want to move into something like that....

From there, 700k would either buy you a get you a sizeable downpayment on portfolio.... chances are this will be a group of properties ideally owned by one investor. It'd make a 1031 kind of a pain and slightly more complex, you'd probably want to do a reverse...

Any way you slice it, it's going to be a lot of work and if you're not of an investor mind........ it's probably not worth the time.