All Forum Posts by: Leanne Pressly

I could use a crowdsourced opinion and numbers audit on a decision: I was planning on moving into one of my rentals this summer and I'm getting cold feet so I started crunching numbers again and it APPEARS that it makes more sense to stay in my primary residence and sell the rental instead?

Stats:

Primary residence purchased in 2004 for $209K; Market value now $670K;
Rental: Build completed in Dec 2019 at cost of $330K Market value now $600K;

Option A: Sell Primary residence now for $670K move into rental, sell rental in 2 years at $725K. cap gain now would be $0; cap gain in 2 years $395K
estimated tax=$59K *I'm not sure how to calculate this because for 2 of the 4 years it will be a 'primary residence' while we're living there?

total gain on both properties after 2 years: $461(primary)+$395 (rental) minus taxes of $59K=$797

Option B: Sell rental now for $600K (Or do I need to wait until Dec to achieve long term Cap Gains rate?) stay in primary 2 more years and sell at $850K. cap gain now=$40K cap gain in 2 years $0

total gain on both properties after 2 years: $270 (rental)+$640 (primary) minus taxes of $40K=$870

Assumptions:

1. In both sale scenarios, assume 3% realtor fees for FSBO. I just left this out of the equation.
2. Market currently appreciating at 10-15% year over year. I used 10%
3. In 2 years, cap gain rates unpredictable (Biden could raise them; our income bracket would most likely decrease)
4. Must space out sale of "primary residences" by 2 years
5. Not really interested in making either a rental
6. In 2 years, we'll have new house to move into (building that next year)

Other things I'm thinking of:1) I have an awful HELOC interest only loan for $229K I MUST get rid of ASAP. If I can't generate the cash to do so fast, I'll do reverse mortgage on one of my properties to raise the funds.

2) If I move to rental, I'll need a storage unit at a cost of $4K

3) There is a possibility I'd like to buy a rental/ second home in Tucson within the next year. So, I *could* do a 1031 exchange of 2nd street rental this December and kick the can on capital gain for that property.

I'm sort of thinking that the best bet is to sell Rental in December and do 1031 exchange to a rental home in Tucson that I live in part of the year and rent out via airbnb the rest of the year?

Thanks in advance for your opinion and analysis friends! Leanne

@Dennis Maynard thanks for your quick reply. Would you include the realtor friend or just do first deal with GC alone? Can you give me math example with your capital/ sweat equity priorities? Ie, if I put in $100K and he does $60K, what does the equity split look like?
Do you think I'd make more money partnering with him vs. paying him outright for services? 

I've invested in real estate for 20 years in Colorado. I have several successful rentals. I'm the CEO of a marketing agency I started 10 years ago and that's my main gig. 

Right now I'm building a new rental and hired a GC. Lately, he's been saying he wants to make more money and get into the investment game but he has limited capital (he has access to a HELOC for $60K at 6%). I have capital. Right now about $100K to spend.

 
What are the pros/ cons of partnering with him in a business venture vs. just doing my own thing and paying him as my contractor?

I might add I have another girlfriend who suggested we partner as well. She's a savvy realtor, owns rentals and she also has capital. Maybe I form a syndicate? Not sure if we'd buy and hold or buy and flip. I love making money but of course, I hate paying cap gains. 

So far, the pros/ cons I have are:

PROS:
Dedicated GC/ Subs to turn projects faster
Bigger pool of money to work with

CONS:
Less of control in decision-making
Going into biz with girlfriend (of 20 years) could be bad idea

Thanks in advance for any thoughts on how to structure things as well? If GC does most of the labor, would it be fair for him to put in $60K, I put in $100K but then we split profits since he's doing about $40K worth of work? How do most syndicates/ partnerships set up the structure?

Leanne

Thanks guys-- this is helpful information! @Pavan Sandhu, Are you suggesting to split the costs into JUST HELOC and the balance into a Construction loan because you recommend not tapping into cash at all?

I'm planning on building a $275K rental project starting in April 2019. I am conflicted about where is the smartest place to pull funds and would like opinions? I have $175 invested in stocks in my taxable account and another 30-50K in cash coming out of my business at year end. I could also do a HELOC at 5% (for about $150K) or get a construction loan at 6% and convert to fixed later.

If this were your project, how would you pull the funds?

Some of my assumptions:

1) The market will correct soon. If I need any cash out now, I should take it in September or October before the election

2) I did make gains on the investments so I'll need to pay tax on that. I'm in the 25% bracket. (This year I made 40% return and 15% over 5 years so I did really well)

3) My money in the market COULD keep earning above what I pay in interest? Maybe not if the correction is steep enough

4) Interest deductions are going away with new tax law correct?

THANKS! I love this group, Leanne

Hmmm, good point that I hadn't really thought of. I guess part of why I want to build is because we ALSO own two other lots in a prime subdivision and we thought to build a smaller house would let us dip our toes into building so when we get to building on those lots we'd be more experienced? 

We'd be working with a builder who has his own crew so we're not going to be the General in this instance. 

Hi Everyone, I'm new here and seeking some opinions on offloading a rental property.

Background: 2K sq ft single family home in HOT market in Colorado. I've owned it 2 years and break even on the rent. I intended to fix/ flip but since having contractors look at it, I've changed my mind. It's a pandoras box of renovation needs and I thus far can't find a contractor willing to do it (hot market has drawn them all to new construction) 

When I bought the property, there was a splittable 25X150 lot next door. I paid $310 and it's now worth about $420 without the lot-- so I could make a bit of $ and keep the lot (now worth $90K)

Here are my choices:

1) Sell house pay capital gains (25%) and pay down other RE debt or use that cash to build new rental on lot next door.

2) Sell house and do 1031 exchange into another investment property in better shape.

3) Scrape house and build triplex.  (somewhat of a moral dilemma here-- the former owner currently lives next door- an 80 yr old lady who lived in the house for 65 years and lots of folks in town who'd judge me for demolishing a historically remarkable home)

Would love some feedback on this! Leanne

OK, good to know. I'll abandon that option then and just start looking for another option. Thanks for all your insight-- this has been really helpful.

Thanks Dave for your reply

When you say "simply sell the lot and do a 1031 exchange" you mean to find another property entirely to replace it with?

What about my idea of selling the lot to the builder and then buying back the house/lot from him? Would the IRS see that as an illegal workaround?

I'm also interested in this discussion and would love to hear Dave's answer. I own a lot next to a house I want to sell. I have a builder but I'm not sure if he's willing to "play my game" of this 1031 exchange. Would he buy my lot at full value or some adjusted lower value? I don't think he would have the cash to front the construction as well...so how do I finance it? If he does finance it, do I essentially pay him interest on that "loan" while he's building or will he just pad in some fee (which of course has to be cheaper than what I'd pay in Capital Gains). 

How do I draw up paperwork that secures my lot while he "owns" it (ie, what if he dies in an extreme example).  What other considerations do I need to take into account. And, I'd also be curious if Dave, you offer support for these transactions? Leanne