All Forum Posts by: John Gillick

You could also get a line of credit for about $150k (you should be able to borrow 75% of the value.)

The reason I suggest this is…

1) you save $40-$60k in selling costs. 
2) you have a lower blended interest rate (2/3rds at 3.25% and 1/3rd at 7 or 8% instead of the whole $500k at 7 or 8%) saving you another $1k/mo in interest. 
3) you only pay interest on that $150k when you actually use it, not from day 1  

Unless you hate this property, or want to buy something you can’t afford without selling, that would be my plan. The new property has to make $50k plus $12k/yr more than the existing property just to break even. That’s best case. 

@John Gillick. Yes. You can use it as a downpayment on a property over $450k and use leverage tax free. I “assume” they meant you wouldn’t defer all your taxes if you used leverage on a $450k purchase instead of “spending” all your cash.

@John Gillick To fully defer taxes in your 1031 exchange from the $450K sale of development rights, you must reinvest the entire amount into like-kind property. While there's no strict requirement to match the original mortgage terms, reinvesting the full proceeds without financing or using leverage to enhance returns is key.

If you don't reinvest the full amount, any shortfall ("boot") will be subject to capital gains tax, and depreciation recapture may apply.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Hi all, thank you very much for the replies. 

We are not large scale but we do own properties in multiple states and are aware of the limitation of a subjective line like "should have rented in a hot market". We consulted here because we're certain they truly were negligent. 

In terms of renting it out - we saw the unit was offline on Zillow and other listing websites depsite the fact it was supposed to be on, and we were the ones who notified them of it. We were told explicitly that they don't want have time to do more showings bc they think a tenant is comitting, and that tenant fell through in the end. And in terms of the unit - we own 4 others in a 3 mile radius and are very familiar with comps. We ran the numbers and saw what rented and know the price was okay. We also put $10K into rehab at turnover right before.

In terms of the expenses, we're honestly not sure if they are stealing or just imprecise. Rehab contractor charged $10K, the online report says $16K. We asked for receipts but haven't received them, even though according to contract they're mandated to share them.  

Most importantly, they are disrespectful and bad business people. It's a small shop and we deal with the owner, no one to escalate to. 

Of course we can cut our losses and switch. We just really wanted to see if we can get something back because they are really bad at the job and have cost us many thousands of dollars (if not more).   

@Dave Foster

Are development rights “real property”? Can he do a 1031? If so what are his loan requirements? I assume zero as he would have to reinvest all cash received to avoid all taxes, correct? Interesting question if nothing else. 

 So the working partner gets 16%ish? and the 20K on the front end?

something like this would probably run about 12%-13% with 3-4 points for an extremely experienced borrower . Are you taking down payment on the purchase or funding the whole purchase and construction ?