All Forum Posts by: Justin S.

Hi @Dave Foster! Hope all is well with you. What a crazy market! Super happy I sold my house when I did and the 1031 was a fantastic move. We just finished up the reno and have it rented and im in the middle of refinancing. 

Hi @Dave Foster, 

Thanks for the reply and kind words. I hope you are staying safe out there. Let me make sure I am understanding this correctly. I ended up allocating 120k to the 1031 side of this purchase. Its a 2 unit property. I expect to be all into it including acquisition and renovation cost for 2.35M. If I sell for 3M and net 2.9 lets say, I would be completing a new 1031 for 550k? 

I have a very unique situation I wanted to discuss with the community and all our accountants out there. 

I sold a 3 unit primary residence that I occupied for the last few years in December of 2019. I ended up doing a 1031 on the purchased another Brownstone in Brooklyn. The project required a major renovation and I got a great start on it. Its been stalled for the last month due to the virus and all construction being stopped by the city. Its a 2 unit property and I planned to live in one of the units, but boy are things crazy in the city right now. We are currently renting a house is the suburbs for the time being  and planned on moving back to Brooklyn. My wife is a school teacher and it looks like school will be closed for the rest of the year. 

I am a mortgage banker and have been talking to a lot of my real estate agent relationships and there is major talk of a big decline in NYC real estate values. I have a very large amount of equity in this house and greatly concerned. The fair market rent of the unit would be 6k per month and there is a lot of risk right now out there with unemployment shooting through the roof. I am in a private money loan right now on the property and need a Jumbo loan to get out and the Jumbo market is getting destroyed right now for obvious reasons and rates have increased substantially. 

All that being said, I was reading Publication 523, specifically the unforeseeable events section. 

You meet the standard requirements if any of the following events occurred during the time you owned and lived in the home you sold.

• Your home was destroyed or condemned.
• Your home suffered a casualty loss because of a natural or man-made disaster or an act of terrorism. (It doesn’t matter whether the loss is deductible on your tax return.)
• You, your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence:
  1. Died;
  2. Became divorced or legally separated;
  3. Gave birth to two or more children from the same pregnancy;
  4. Became eligible for unemployment compensation;
  5. Became unable, because of a change in employment status, to pay basic living expenses for the household (including expenses for food, clothing, housing, medication, transportation, taxes, court-ordered payments, and expenses reasonably necessary for making an income).

An event is determined to be an unforeseeable event in IRS published guidance.

Even if your situation doesn’t match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable. Important factors are:

• The situation causing the sale arose during the time you owned and used your property as your residence.
• You sold your home not long after the situation arose.
• You couldn’t have reasonably anticipated the situation when you bought the home.
• You began to experience significant financial difficulty maintaining the home.
• The home became significantly less suitable as a main home for you and your family for a specific reason.

So, for all the reasons I mentioned in bold above, would it be possible to get out of paying capital gains if I sold? 

If so, a portion or all? Any input would be greatly appreciated. Hope everyone is staying safe out there. 

@Ahmed Saad That is very nice of you to say, thank you! I followed @John Hickey to Newburgh about a year and a half ago and purchased 7 units there (2 buildings). One is completely renovated and rented and the other one should be done in the next couple of months. The 2nd one was a massive project of a 6200SF historic mansion on the waterfront which will be 4 units. The smaller one has great tenants and I was torn if I should keep it or sell it, but decided to sell. I purchased it for 105k and put in 80k. Its in contract for 320k... Decided to take some money off the table as cash will be king in the downturn. Ill do it again... The building I referenced above that I am purchasing is in Bed Stuy. Glad you are doing well and congrats on the 3 fam! 

@Dave Foster- certainly couldn't have done it without you. Thank you so much for always answering my calls, emails and questions in a very timely manor. You are full of knowledge and there wasn't anything I threw at you along the way, and it was a lot, that you didn't know. You are the man. Thanks for the kind words. 

@Ahmed Saad

Hello there. Hope all is well with you and the fam. I have been extremely busy but wanted to check back in to the community and provide an update. I did end up executing my plan and very happy I did. I see and feel the tide changing in Brooklyn. Properties are taking much longer to sell and price reductions are everywhere. My goal and dream was to sell high and by low and take all of my money off the table to have for the next downturn and I did just that. I am closing on my building in the next 2 weeks for 2.5M and purchased a new much bigger building for 1.65M. I will be installing new mechanicals and cleaning the place up and expect to be all into it for under 2M. Its an instant equity position and I plan to hold it long term. I will be sitting on the sidelines for a little while in search of a new primary. 

@Llewelyn A. Hows it going over there? 

Big shout out to @Dave Foster for helping me out with the 1031. 
 

@Llewelyn A. Just wanted to check back in. Hows it going? What do you think of the current climate in Brooklyn? Bed Stuy has been getting a LOT of price drops lately and things are certainly staying on the market way longer then previously. I think the adjustment is already happening and the Brooklyn market is finally stabilizing. Thoughts? 

Also, I went with a large 2 unit because I believe NYC rents are so out of control right now that people are doing shares more often. I know a friend who owns 2 buildings and rents them out as is single family homes that 3 couples share. As always, thank you for your thorough explanations and market expertise. 

Hello everyone! Its been about 3 months now and wanted to catch you up to speed. Ive decided to list my property for sale. My game plan is to do a 1031 with @Dave Foster and buy another house in the Neighborhood. I have about 1.2M in equity sitting in this house and learned a ton on the last reno.. I plan to do it again. 

@Llewelyn A. Im going to buy a 2 unit this time around. What are your thoughts on that? I plan to purchase it with my 1031 money and occupy it. As mentioned previously, when buying a 2 unit, since half is an investment property and 1/2 is owner occupied, I can walk away tax free. Ill fix it up, and then pull my cash back out of it in 6-12 months. Not all of it, but enough where the property breaks even, but I have majority of my capital back. I expect to have about 200k "trapped" in the property but believe in the neighborhood and its continued development and appreciation. The recent interest rate drops are certainly helping as well. The property I will be buying is grand and has instant equity and set up as a legal double duplex with tons of original details. I figure I can update kitchen and baths and call it a day. I plan on renting each unit for $4250-$4500 per month. 

@Frank Gucciardo @Thomas Flint

When is the last time you have been to Newburgh? There are permit signs on every other window. New restaurants, bars and shops opening up very frequently. Do you follow any of the Newburgh blogs? I would have to agree with @John Hickey, Change is without a doubt coming. I have gone to a few of these investor meet-ups with 50+ people showing up. Go have lunch any day or the week at Ms.Fairfax and come back to report what you see. The place is packed every single day I go there during lunchtime. There is BIG money being poured into the neighborhood right now. What are the signs you are looking for that you haven't seen? 

I live and work in Brooklyn and have 7 units up there right now. Very happy I purchased them last year. No regrets whatsoever. As a lender, I also have about 10 pre approved clients there consisting of 70% owner occupants. The writing is certainly on the wall! With Beacon building million dollar condos across the river, I look at it in the same way I look at Bed Stuy to Park Slope. 

Park Slope has way more amenities, better schools, MUCH more safe, yet Bed Stuy Brownstones still sell for 2--3.5M. Why? As Long as Park Slope sells for 4 million, Bed Stuy will sell for 2 and as time goes by, the gap gets smaller and smaller. Do I think Bed Stuy will one day be Park Slope? Absolutely! 

I look at Newburgh no different. Many people want to be a part of the change, would like a nicer house only 7 mins away or to put their own touch on something. With all of the artist in Newburgh right now, they don't want the cookie cutter houses, they would rather buy a building that has some architectural significance and put their own twist on it. The housing stock in Newburgh, even though beat up is gorgeous and once brought back to life, you truly have something spectacular. Follow the artist! This approach has never let NYC investors down. 

@Ahmed Saad, Congratulations on the baby. Its a lot of work, but its great, isn't it? My wife and I both grew up on Long Island. 8 years ago we moved to BK because she was having a hard time getting a job as a teacher. We fell in love with Brooklyn, and ended up purchasing here. I absolutely love it here, but as with anywhere, it comes with a lot of pros and cons. The lifestyle, restaurants, accessibility, people, things to do, culture, all incredible. Parking, crime, safety, snow, alternate side parking to name a few, a royal PITA. 

We are super friendly with our tenants and they suggested we download the "Citizens" app. Heard of it? Worst thing I ever did. Get 15 alerts a night. I had 7 cops searching my backyard the other night looking for someone. LOTS of crime around me still but not at all the reason why I would be leaving the house. My wife ended up getting a job on Long Island a few years ago and does a reverse hour commute. It is a MUCH better paying position with fantastic benefits, pension, etc. All of our family is out there and we have zero help with our daughter out here and child care is super expensive in NYC. My wife has been out on maturity leave and starts teaching again today. Starting in 2 weeks, my wife will be driving my daughter with her to a family members house near her school and continuing the reverse commute. Its a lot on her... 

My business is becoming more and more virtual. I have an office on Long Island and an office in Williamsburg Brooklyn. I can work a couple of days out of each office. We are also outgrowing this house. It is tight as it is, we have hardly any space for family to stay over, and if we have one more kid, we have without a doubt, outgrown this house. Sure, we toyed with the idea of buying another, bigger brownstone to live in and renting this one out, but it would just be easier overall to live out on Long Island. I really hate to say that because Long Island is a pretty lame place to be but process of elimination will end up bringing us there, its just a matter of time. We would be giving up a lot here, but as you know when you have kids, its all about them! 

I do not have any partners in any property I own. I also think 500k would be plenty of a downpayment to find a deal. Im sure it would need some fixing up, but thats perfectly fine. I don't think I would cash flow much buying something else either, but I would still be invested in the neighborhood, and have 500k instead of 1M invested in it. Can do a lot with 500k. Obviously I am torn on this decision, otherwise I would have made it already. Well said on the trees in the forest, couldn't agree more. Thats what this forum is all about.