All Forum Posts by: Mark Simpson

I have a couple of OZ funds (set up as partnerships - 1065) with multiple properties.  Some of these properties we plan to hold through a 10 year period to get any capital gain over that period tax free with a step up in basis at disposition.  However we have also turned over a couple of properties within the fund during this time, under the assumption that as long as any proceeds stay in the fund, are reinvested in qualified property within a 180 day period...and we meet the 90% asset test June and Dec, that cap gains from these 'flips' can also be parlayed with a basis step up at the end of 10 year.  aka, like repeating 1031's, but without having to do the 1031.

Recently I've started to think this might be misguided, and that the internal gains might come due Dec 31, 2026, along with the initial 85-90 deferred gain/investment because we didn't incorporate the 1031 aspect (and couldn't have because of installment sales, reinvest window etc).  Would love an Accountant experienced with OZ's to chime in.  Again, funds have never left the OZ Fund and always been reinvested in qualified property within the guidelines.

Thanks in advance,

Mark

PM Sent from myself and @Scott Elkins

Hi All.  Long time investor but I am currently under contract to purchase my first MHP in Colorado.  Half the units are park owned, and all are on Rent to own leases.  All leases had the renter put up a $600 option, and then $100/month of rent is credited towards a predetermined sale price.  Of the units that are still park owned, there are varying balances still owed.  The option and equity payments are fully earned - if the tenant defaults, the park owner won't refund any of the money put up.

In the sale of a Park like this, how is the option/equity money usually dealt with.  Would you expect the seller to credit the buyer with the option money just like they would security deposits?  Is there a 'normal' way to handle this, or is it usually up to the contract.  

With the option being non-refundable, does it need to be held in escrow till the tenant either completes the purchase or defaults?

Thanks in advance!!

Mark Simpson

How are deferred payments being handled and when are they due for most people?

Early on there seemed to be some confusion as to whether payments would be added to the end (loan modification), or come due either in lump sum or with a repayment plan at the end of the deferment period. I believe how this is handled is going to have a massive impact on the number of foreclosures and the overall state of real estate over the next 2 years.

I would love to hear from lenders/servicers as they see volume, but would love anyone to chip in with personal experiences.

Now we are 3 months down the road, how do you see this shaking out?

I've heard some people saying its going to be no big deal, its added to the end (loan mods), meanwhile I've spoke to a lender that said loan mods are next to impossible for people to get unless they catch up any missed payments from the forbearance period first.

The threads I could find on the forums all seem to be from back in march, so I wanted to see if there is any more clarity now.

Thanks in advance.

How are deferred payments being handled and when are they due for most people?

Early on there seemed to be some confusion as to whether payments would be added to the end (loan modification), or come due either in lump sum or with a repayment plan at the end of the deferment period.  I believe how this is handled is going to have a massive impact on the number of foreclosures and the overall state of real estate over the next 2 years.

I would love to hear from lenders/servicers as they see volume, but would love anyone to chip in with personal experiences.  

Now we are 3 months down the road, how do you see this shaking out? 

I've heard some people saying its going to be no big deal, its added to the end (loan mods), meanwhile I've spoke to a lender that said loan mods are next to impossible for people to get unless they catch up any missed payments from the forbearance period first.

The threads I could find on the forums all seem to be from back in march, so I wanted to see if there is any more clarity now.

Thanks in advance.

Hi Blake, I'm Scott's partner and thought I would throw my 2c in.  

First off, the loan you are asking about is called an "FHA 203K". You must be an owner occupant, but can get draws for rehab costs etc etc with potentially as little as 3.5% down. There is a ton of paperwork and loops you will have to jump through. If you have a great deal and no source of family or private money then it will allow you to get the job done. Fair warning - I have no personal experience of using these loans, just know what I know from word of mouth. I'm sure there are plenty of threads on the program, otherwise google can fill in some blanks.

As for the deal. I only see two options that you could be talking about (unless you have something off market). In any case I'll detail them for the fun of it. 20748 Hwy 550 and 1416 Aspen. Both in my opinion are terrible options. The first DOES NOT include a 'small amount of land'. It's a space in a park. If you want to buy a home to put in a park, there are much cheaper options out there. They might not be 2015 but they're also not single wides. As for Aspen Dr, its 1972. To qualify for FHA it needs to be built after June 15 1976. Finally for the remodel. Scott and I have done very well remodeling double wide manufactured homes. We have taken 2 single wides to the dump... they are VERY different 'homes'. We have however never done an addition to these. The problem is they are almost always 2x3 walls, with 1/4" drywall. They are built at the minimum snow load for exterior walls. If you were to blow out a wall to add square footage, the original wall would not be designed to hold the extra roof and walls attached - if not done properly it would potentially jeopardize all future financing.

Long story short IMHO as you pondered in your last post, it may be best to keep searching.

Feel free to reach out to Scott or I.  Given your sub 200K budget, IMHO your best opportunities lie in Montrose or further North.  More options and 'learning' is less costly.  That doesn't necessarily mean you can't live in Ridgway.

Good Luck!!

Rodney, impressive work with the discount off list price...they were tired obviously, way to snatch it up!  I suspect Alpine or Community Banks are your best local chances, but based on my experience definitely will have to go on purchase price, and if not owner occupied Alpine might only do 65%.  Obviously won't know til you ask.  I suspect to use appraisal value you'll have to wait at least 12 months and have several months of it tenanted.

I am trying to help a previous client avoid a healthy capital gains bill on the sale of their primary residence.  Trying not to spell it out to them directly though out of concern of giving tax advice outside of my scope.

I was the listing broker when they purchased their current primary in mid Jan 2017.  Additionally they sold and presumably took tax free gains on their previous primary, on 12th Jan 2017.  They just listed their current residence, and it's due to close Dec 12, 2018...23 months after purchase, and 23 months after sale of a prior section 121 exclusion property. Clearly they fail the eligibility test!  I pointed it out to them and suggested they consult a tax adviser.  The response from their H&R Block accountant was 

"Hi xxx,

The exclusion for gain of a married couple is $500,000 ($250k per couple). It is actually prorated if the time is less than 24 months. That would make for the exclusion at 23 months to be $479,000 still. So you should be fine.

Sincerely,

ABC Accountant"

Now I am 99% sure they don't qualify for the 'partial exclusion of gain' exception AS IT WAS INTENDED (They plan to repurchase in the same town, no health issues or other extenuating circumstances I'm aware of)....that "ABC" is so confident in - or seems to think is a flat rule that broadly applies to everyone. (I flip 8-12 homes a year and if it were that easy my wife and I would have a new primary with a 50k profit every 3 months!)

SO, my questions to you tax experts out there are...

How likely are they to get audited (I mean the purchase and sale dates are right there on their returns!...not to mention the prior exemption they've taken inside 2 years)?

Does the partial exclusion get challenged so rarely people are getting away with this so much it's just standard practice within reason?

Assuming I'm correct in my concerns, and they get audited does H&R Block need to come to the party for the bill given they have given such atrocious simplistic advice in writing? 🤣

Thanks in advance!

Hi David,

I am not sure if you are already working with a broker in Telluride, but if not I would be happy to assist in that Department.  I am a Realtor in Colorado and fellow investor.  By no means an expert in 1031, but I have used the tool to purchase property locally here in Telluride.

Maybe some of the experts can correct me if wrong, but you may be able to use a reverse 1031 to give your timeline a little more flexibility.  If I am not mistaken you could do - Sale #1, Purchase, Sale #2 via reverse 1031 in that order.  I believe that everything still just needs to be wrapped up within 180 days.  You will need to have enough cash to not be reliant on proceeds from Sale #2 to fund your purchase, and it will add a $1500-2K to your transaction costs.  You could also do Purchase and then Sale #1 and #2 (which is what I have done) but that adds a little more risk of being able to sell in time so only advisable if your purchase was a smoking deal.

I'm sure you are aware, but total sales price of #1 and #2 combined must still be less than the purchase price to avoid boot.

Hi Jim, Welcome to BP.  I am a broker in Telluride, with a few vacation rentals, and a portfolio spread across the western slope of Colorado.  Feel free to shout out any time, or look me up when you next make it to the Mountains! - Mark