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Updated over 8 years ago on . Most recent reply

User Stats

52
Posts
11
Votes
Ricardo Olea
  • Real Estate Broker
  • Chula Vista, CA
11
Votes |
52
Posts

What to do with money from first deal???

Ricardo Olea
  • Real Estate Broker
  • Chula Vista, CA
Posted

Ok, so first I want to say I'm not counting my chickens until they hatch, however, as this deal gets closer to closing I am left wondering what I should do with the money. 

50K profit on my first wholesale deal that I joint ventured with a wholesaling company. We went 50/50 they covered all the paperwork I tracked down the deal. A duplex and triplex located in my back yard of Sunny San Diego. 

My first thought is to pay down some of my personal debts that have higher interest rates and roll over the rest to a 0% introductory credit card and keep paying it down.

Second thought was to throw a big portion of it straight back into marketing for more of these properties. 

The third option is to use a 1031 Exchange and buy a turn key property in Palmdale, CA. My friend is an agent up there and is giving me first pick before it hits the market beginning of next week.  The owner just wants out of the property and is willing to take 30K less than market value. Ran a quick analysis and with a 50K down payment and a conventional loan I could rent out the property and make enough to cover all expenses associated with it. Wouldn't be cash flowing insane amount of money, however, that's something to put me where i eventually want to be, a buy and hold investor. 

My biggest worry is taxes. I know the smart move would be 1031 exchange to avoid capital gain taxes. I would just appreciate some feedback from seasoned investors or newbies who wish they did something different or knew something they should have done with their first deal profits. I honestly cannot wait for feedback! And thanks in advance BP family. 

Best,

Ricardo

Most Popular Reply

User Stats

794
Posts
612
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Andrew Michael
  • Lender
  • Frederick/ Falls Church DC, Maryland & Virginia
612
Votes |
794
Posts
Andrew Michael
  • Lender
  • Frederick/ Falls Church DC, Maryland & Virginia
Replied

How confident are you in your ability to find more profitable wholesales such as this one?  I ask because this seems to be a significant source of income at the moment so I would think you would want to keep that going at all costs.    

How much do you know about 1031 exchanges?  I am not a 1031 expert but I have introduced that option to potential sellers in the past.  It has been my experience that these are fairly sophisticated transactions that can be very costly and time consuming.  Without knowing the numbers in the examples above, would the costs of the exchange justify that strategy just so you can limit tax exposure?  Also I would love for a 1031 expert to chime in because I am not convinced a wholesale deal qualifies you for a 1031 exchange anyway.  Did you actually close and "own" the property or was it just assigned to the buyer?  

Personally I would keep using the wholesaling money to pay down high interest debts.  If you can continue to wholesale at these margins then don't stop.     

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