Options of 100k and a good job

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Options of 100k and a good job

Brendan Reilly
Rental Property Investor · Lincoln university, PA · Member since 2015 · 25 posts · 1 vote

So I recently discovered that I will be inheriting a piece of farmland. Not all of it but a fraction and we are either going to buy one another out at a deal price (around 50k) or sell on the open market( hopefully around 100k). This presents me with multiple questions. 

1. Can you 1031 a share of a property?

2. I am torn as to wether I will buy one (or 2) nice property or many so-so properties (no trash but with increased chances of falling into a pig)

3. Also one last question. I have been running the numbers and listening to everything I can. I can't seem to wrap my head around how 200 in cash flow a month would ever make sense. Maybe I am missing something but even though the mortgage may be getting paid off and your making a 10 percent cap rate I don't see how you would survive say a roof repair or even afford property management. 

To give more info I am in the Delaware-Philadelphia area, I make good money and plan on dedicating 2k a month of my current full time income into this endevear of achieving freedom. This is probably why 200 in cash flow doesn't make sense when trying to grow my portfolio exponentially and why I'm leaning to bigger down payments. Any help would be much appreciated, if I'm thinking about it all wrong please educate me.

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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
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You'll receive a stepped up basis on inheritance so no gains and no need for a 1031. 

Bigger down payments leave less for investing and reserves.   

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    You'll receive a stepped up basis on inheritance so no gains and no need for a 1031. 

    Bigger down payments leave less for investing and reserves.   

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  • Matt Motil
    Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
    11y

    Single family buy and hold investments aren't the home runs that allow you to quit your day job. You need a ton of them to add up to the cash flow needed to quit working full-time, and then honestly, most people realize the value of putting those cash flow gains back into their portfolios and understand the value of keeping their day jobs as long as they can to not pull money out of their properties. 

    That all being said, buy and hold properties provide equity value to your portfolio and long-term growth of your business enterprise. As long as the property is seeing actual cashflow each month, someone else is paying down your debt for you and you are building equity on someone else's hard work (tenant's job pays your debt). The real value in buy and hold comes later on when the property is paid down to the point where you can leverage that equity into larger purchases and/or have the debt gone completely and provide more substantial cashflow. 

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  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
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    To your #3...

    Cash reserves need either a big chunk of cash to seed them or time to grow. A roof, for example, might last 15 years and $200 x 12 x 15 is $36,000 - more than enough to replace a roof, barring violent weather damage.

    Hope that helps...

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    11y

    @Brendan Reilly, Your CPA will tell you that you do not need to 1031.  There should be no gain recognition on the inherited property unless you buy the other heirs out and then sell later.  In that case you will want to do a 1031 when that happens.  

    And yes you can 1031 a "share" of property as long as you mean a tenant in common % ownership of a piece of property.  You can't 1031 share of a business entity that owns a piece of property. Whoever is the tax payer for the property can do a 1031.  And you can sell one piece of property and use the proceeds to buy (either as cash or down payment) several new pieces.

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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    11y
    Originally posted by @Brendan Reilly:

    So I recently discovered that I will be inheriting a piece of farmland. Not all of it but a fraction and we are either going to buy one another out at a deal price (around 50k) or sell on the open market( hopefully around 100k). This presents me with multiple questions. 

    1. Can you 1031 a share of a property?

    2. I am torn as to wether I will buy one (or 2) nice property or many so-so properties (no trash but with increased chances of falling into a pig)

    3. Also one last question. I have been running the numbers and listening to everything I can. I can't seem to wrap my head around how 200 in cash flow a month would ever make sense. Maybe I am missing something but even though the mortgage may be getting paid off and your making a 10 percent cap rate I don't see how you would survive say a roof repair or even afford property management. 

    To give more info I am in the Delaware-Philadelphia area, I make good money and plan on dedicating 2k a month of my current full time income into this endevear of achieving freedom. This is probably why 200 in cash flow doesn't make sense when trying to grow my portfolio exponentially and why I'm leaning to bigger down payments. Any help would be much appreciated, if I'm thinking about it all wrong please educate me.

    If it is being sold you do not need to 1031. Your basis is the FMV on the date of death. You could actually see a loss from commissions/selling expenses unless it appreciates quickly between date of death and the sale day.

    2. that is up to you. My advise go as big as fast as possible. One loan on a bigger property(5+ units) rather than 5 loans on 5 small properties.

    3. Look at it as 200 PLUS principal paydown. So if you had a 30k downpayment. and 1k of principal paydown, you made 3400 on a 30k downpayment. 11.33% ROI not including appreciation.

    [email protected]224-381-2660
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  • Brendan Reilly
    OP
    Rental Property Investor · Lincoln university, PA · Member since 2015 · 25 posts · 1 vote
    11y

    That's good news on the inheritance. I understand most of what everyone is saying. Steve, what would be your thinking behind go big early? That's one of the largest decisions I feel I face as to how to use the money. I see so many cheaper properties pushing into the mid 10s on cap rate but they all look like time bombs for repairs. Do larger more expensive properties offer any advantages over small ones even with reduced cap rates?

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  • David Nolan
    Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes
    11y

    @Brendan Reilly Hi and welcome to BP. It appears to me that you would be well advised to learn more about property investing before making any decisions. In fact I would suggest learning more about wealth creation and money management in general. The very experienced Mr @Account Closed said ..."Bigger down payments leave less for investing and reserves." which is a fundamental piece of good advice. Your apparent lack of this understanding suggests more learning would be your best course of action before investing. Your post here is a good start. Perhaps look to invest with others in a JV first and learn the ropes, so to speak.

    Creating wealth is not just about choosing which property, or properties to buy. So become a student of wealth creation first. It will only be of benefit.

    Good luck with your investing and enjoy the journey!

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