What's the best way to buy this house?

Question

Meet Husband, Wife, and Mom.

Husband and Wife are pre-approved for $900k in loans, looking for a 2-family house. Husband & Wife will occupy 1, Mom the other.

To make the down payment, Mom will sell her fully-owned condo for $500k or close to it.

I think Mom should buy the property using a 1031 exchange to avoid taxes on the sale. Other than that, what other advice would you give this lovely couple and their dear, sweet mom?

Aaron Rosenberg · Answer

Thanks for the analysis. My next deal is still 2 years out. The dollar amounts are relatively low so I'm not sure a 1031 exchange is necessary. Then again that seems like a good time to do my first one.

Dave Foster · Answer

@Aaron Rosenberg, Depends. Did mom live in that condo? If so then she might not need to do a 1031. If she lived in it for 2 out of the last 5 years she gets $250K of profit tax free. More importantly she can't 1031 because that is only for investment real estate.

But...

If that condo is investment for her I think you're on the right track. In a 1031 she'll need to take title to around $500K of investment real estate. Here's some options:

1. Purchase it with you guaranteeing the loan. She'll need to use at least 50% of it for investment. But she could rent it to you.

2. Purchase 50% of it and you purchase 50% of it - her cash and your credit. Same story - The side you live in is her 1031 replacement. The side she lives in is your 50%.

What's the best way to buy this house?

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