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Updated over 5 years ago,
How to purchase REI using 1031 exchange
Hello community,
I am new to real estate investing and have an interesting question which I hope someone can help me out with or at least point me in the correct direction. This might be more of a what would you do in this situation?
I have a friend that sold a rental property and now has a 1031 exchange for 240k that he would like to get invested before taxes are due. The property was sold on the 8th of August for a point of reference on the timing. He does not have the best credit but the cash, I do have good credit. I am from Nashville TN, and my friend is from Green Bay WI. He is not interested in purchasing any property in Wisconsin because of the high property taxes compared to other states. We are looking in the area of Bowling Green KY as the prices in Nashville are quite high currently. We are planning on doing a partnership on this property. We are looking for properties that do not need much/any cosmetic work and is ready to rent.
What we would like to do is use his 240k for a down payment on 3 or 4 unit property (maybe if it worked out two of them), then use a hard money lender to get the remaining money needed to purchase the property. Then within three months or a year do a refinance on the property and use the money we get out to pay off the HML and then he can get a portion/most of his original investment out of the property.
We did not create an LLC yet and when I spoke with some of the hard money lenders that is a requirement. But then a normal bank would not do a conventional mortgage for an LLC property. At least that is what I was told when I contacted two of them.
I guess my main question is – does this sound like a correct way of doing this? Our thinking is if we went to get a mortgage on the property right away his money would be tied up for years (thinking 6k for closing costs, it would not pay to pay that again in a year or two to get the money out). Should we go the LLC way or is there a better way out there for this situation? Any help or ideas would be great!!