All Forum Posts by: Christopher Phillips

You're still going to have a problem because it's immediate family. It's not impossible, but the IRS generally frowns on such transactions.

Okay. You said he already sold it…

@Udit S.

If your father already received the funds from the investment sale then he can't do a 1031.

@William Miller

IRS liens are difficult to deal with. They don't easily negotiate. Essentially, the seller hasn't paid his personal taxes, so the IRS has put a lien on his property. If there is enough equity in the house, the lien can be paid off at closing. If there isn't any equity, or the owner can't negotiate with the IRS to remove the lien (they usually won't until paid), someone will have to satisfy the lien.

@Gayle Melnick

If you can find deal because the owner has to sell in a hurry, like for a job move, then you might find some instant equity left on the table. Usually, that will be an off market deal.

@Gayle Melnick

No. In general, it doesn't work. The BRRRR strategy relies on getting the heavy discount during the purchase. Without that, it's hard to get enough equity remaining. Also, since it will be a rental property, you aren't going to rehab it to the top of the market in the same way as if it was a flip for an owner. So, the ARV won't be the same as a top rehab for resale in the area.

Simple example: You buy an average house at $100K, 20% downpayment.

Put $15K into the kitchen and bathrooms. Now it's worth about $115k. You're all in at $80k purchase plus rehab $15k for $95k.

At $115k, your equity is now $20k + $15k, or 30%.

When you go to the bank, they will likely only cash out at 65%, maybe 75%. And, the closing costs on the refi won't make it worth the headache.

You will also find that many banks might only consider the refi at purchase price, not ARV, if within 6 months of purchase. You'll have wait 6 months or more for it to based on ARV. That's another reason why people avoid using a conventional loan. Use cash and it's considered delayed financing and you don't have to wait for the seasoning period.

@Gayle Melnick

No.

Adding $11.8k in rehab doesn't make a $82k suddenly worth $134k.

Returns on rehab is generally only around 80%-90% of what you spend.

The investor makes money/equity by buying at a substantial discount due to the condition of the property or the seller's situation.

If the property is in extreme physical distress, you won't be able to use a conventional loan.

If the property is okay enough to be able to use a conventional loan, there probably isn't that much wrong with it, which means you won't be able to get it at a substantial discount.

@Jack Norris

That makes sense.

Buying distressed properties can be challenging when it comes to unknown repair items.

The other option is to buy properties that have tenants already in them or are ready to rent out. But, you won't be able to cash out and use your money again until you build enough equity. But that can take a long time depending on where you're investing at and how much maintenance and capital improvements need attention.

@Duol Geng

Creative financing can work for the purchase. Using a partner, seller carrying the note, etc.

It doesn't work well for dealing with replacing a furnace or a bad roof.

@Duol Geng

It's up to the seller what to take. If you're competing against other offers, it will be nearly impossible to get an offer accepted with little to no money down.

And no, you can't ask a lender to pay for anything before you've had a loan approved, which requires that the property be under contract so you can go through underwriting.