All Forum Posts by: Dave Foster

@Daniel Foster Hey Great last name!  Obviously the answer to this question is whatever your accountant says.  But there is a precedence for you and he to talk about.  This is fundamentally the same allocation of expenses  issue  you have in a mixed  use property where you live in part and rent part.  The difference is use timing and intent.  

My thought would be that it is possible but you would need to have very clean chain of documentation so that the progression from primary to rental and the associated expenses flow the same way.  And the other issue is going to be whether those are expensable items under any circumstances or whether they would need to be capitalized whether primary or rental.

Dave

I agree with @Alex Agafonov your ratios and risk stress seem a little high.  You've made some great projections but take some time and turn the "wills" into "ares".  If you're looking at staying in this property for two years like you say then don't do a 1031.  Simply sell it and take the profit tax free under sec 121 exemption.  Now you've go tax free cash to get your next two properties.  

Meanwhile work with those roommates and network.  Maybe there's something to be done with the couch sitters on your next properties.  Or maybe you find a creative deal.  Either way it's a great start but don't believe press clippings until they're from yesterday's newspaper.

Dave

@Derek Helm That is awesome that you are thinking ahead and developing goals.  I literally just had this discussion with my 16 year old this morning before I read your post.  All the others on this thread are giving you great advice.  Max and I summed it up in three areas.

1. Educate yourself on real estate and everything associated with real estate.  And yes that means submersion into the world of numbers and math.  But practical math that you'll use every day.  

2. Build relationships.  This is where you find mentors sources of knowledge and capabilities partners and investors.  BP is a great start.  Then search out people in all aspects of the business.

3. Build your war chest.  No matter where you go the borrower is slave to the lender so whether its mortgages or OPM (other peoples money) you'll always ultimately be better off and more free if you use your own money.    At your income level now it may seem tough but as you apply numbers 1 and 2 above you'll find ways to use even what seems like small amounts to start your career.  Then as you go always looks for the avenues to maximize your return and minimize your risk.  I put borrowed money and responsibility to investors in the risk category.

Good luck -Let's connect.  I'd love to hook up you and Maxwell to challenge each other.  I think you guys will blow the doors off.

Dave

I like your business model @Marcia Maynard .  Controlling your pace is a positive for a lot of reasons.  What @Jason Miller is saying about the lease option to current tenants can also help you gain control of a sale in your 1031 situation.  If you structure the lease option so that you are given ample notice and the opportunity to extend for a period of time you just bought yourself some extra shopping days over the 45 day period.  You know the price and you control the date so you can shop for the perfect next property with much more confidence that you'll have a successful 1031 exchange.  Just something to think about.

Dave

Exactamundo @Walt Payne I had the extreme displeasure of trying to use a WY LLC with members in CA, CO, and FL to own property in KS being used for Govt. revolving infrastructure money. Can you say "nightmare"?

Good catch @Brian Burke . DST's do provide another alternative that can be made inside the 1031 window. Limitations in control and voting in a DST are offset by easier financing and lower investment threshholds usually. Same issues of knowing who you're dealing with.

Dave

Good stuff guys but it even goes deeper into each state as it relates to the protection afforded by an LLC. Not all states protect assets equally or limit recourse in the same way.

Dave

Well said @Jim Piper.  Due diligence begins in the mirror and ends at the back door.  In Doug's case he's already calculated the benefit of the 1031 and is looking for the best vehicle that will match his tool kit.  

Dave

Hi Doug,

From the sounds of it this will be a passive geographically agnostic move for you. One product we're seeing clients go into are TIC projects. The TIC stands for tennant in common which is how your investment is held, as a tennant in common on a much larger property. This is what makes it eligible for 1031 treatment. However, contrary to most 1031 real estate investments TIC projects are typically sold by SEC licensed broker dealers. A quick google search for multi-family TIC projects would be a good start.

Although the most familiar TIC projects are things like Walmart markets, Walgreens, large shopping centers and office buildings, there are quite a few multi-family projects scattered around in every market.

Do your due diligence as liquidity can be a concern as well as management capability and true ROI. But they do offer the holy grails of leverage, passivity, and tax-deferred treatment.

Dave

Great potential for a start.  Be nimble and at some point in time (when your wife says enough!) slow down so you can actually start taking out money and reducing debt tax free using your primary residence exclusion.  Couple that with use of 1031 exchanges on the other properties when you need to sell to get a better return on asset and you'll add another 27.8% of profit back to every transaction there in Indiana.

There's a lot of custom builders I know who have done this for years.  Build two sell one and move into one.  Two years later sell that tax free and build two more etc etc etc.  It works.  Just make sure of your returns and safety net.

Good luck,

Dave