1031 Exchange question

[Terry McPherson]

We are currently in the middle of our first flip. Purchase price 68K and will invest about 30K for rehab and the ARV will be around 140-150K (3Bed 1.5 bath). I took a mortgage out on a paid for rental property to finance. Everything is going well and it does look like we will go a little over budget. "shocker".

I have two questions.

1. If we go to 110K total invested should we take out a mortgage on the property we are flipping, prior to filing a 1031?

2. Does anyone partner with a solid contractor for percentage of the profit? If so, whats a fair percent?

Since this is our first flip, we were doing most of the work ourselves to learn as much as possible and save cash.  We know quality contractors and going to hire them to help complete this project to decrease holding cost.   

We are relatively new in this business.

Terry

[Bill Exeter]

Hi @Terry McPherson, 

@Justin Owens is correct.  Flipping property does not qualify for 1031 Exchange treatment.  Property acquired for rehab and then quick sale is actually property held for sale and not held for investment and does not qualify for 1031 Exchange treatment.  You must have the intent to hold the property for rental, investment or business use (not for sale) in order to qualify for tax-deferred treatment.  

Now, if you buy, rehab and then hold for rental or investment, you could qualify for 1031 Exchange treatment since your intent is to hold for rental, investment or business use.