Financing a portfolio of properties
I am wondering if anyone has used the following strategy to finance property renovations or pay down principal.
Hypothetical situation: Portfolio of 5 properties that are currently rented but need renovations if goal is to increase rents. The portfolio is being sold under market value.
Hypothetical strategy: Use separate residential financing on four under market properties to cover the sales price of the 5 properties. The contract for the 5th will be for $1 (instead of 5 contracts at 100k for a 500k portfolio, I am suggesting 4 contracts at 125k, and the 5th contract at $1). After a set number of months, refinance or sell the 5th property to get the cash out to pay down principal invested or use for renovations.
I haven't used this strategy before and am wondering what the implications (especially tax) would be. I know that if I sell the property within one year, any gains would be subject to income tax rates. One of the biggest issues I see here is that one can wind up paying a lot more taxes due to the manipulated appreciation.