All Forum Posts by: Michael Anspach

Looking for some feedback on a small retail/office development project.  Looking at very nicely located property with existing 5,000 sq ft of rental space split among 3 tenants.  Property has space to develop and build an additional 5-7,000 sq ft additional space.  Property is located in North Carolina and our plan is to utilize it as follows:

     +/-   750sf of Office Space for our own use.

     +/-1,750sf of Salon Space.

    +/-2,500-4,500sf would be split amongst 1-2 additional tenants.  Currently have interest.

Questions are:

     -Property topography does not permit a gravity sewer connection.  Arch/Eng'r are suggesting a Grinder pump similiar to (Zoeller Sewage Package System Model 912, https://www.zoellerpumps.com/en-na/products/packag... .  Looking for Good, Bad, Ugly thoughts and costs associated with this?

    -Anyone have any detailed spreadsheets with all line item costs indicated for this type of project?  Trying to make sure I don't miss anything in my cost budgeting.

Thanks in advance!

@Chetan Naik, I know this is a year old but was curios what you were able to find out?

HI @Michele G., I'm in the midst of a 1031 and since the market is so hot I strongly suggest you find your replacement property first before closing on sale of current property as the 45 day ID period will fly bye.  Also, I would suggest you get an accountant, Tax, QI and Attorney who all work together or at least can communicate.  While the 1031 is a relatively simple thing there are a lot of little nuances that you (and your team) want to pay attention to so you don't void the 1031.  

BTW, keep in mind there are a certain expenses that are normal to acquiring replacement property that 1031 funds will NOT be eligible for...NOT an Attorney, CPA, etc, etc....like Loan Application Fees, Lender's Title, Appraisal Fees, mortgage points and assumption fees, etc.   

Depending on deal, these might not be much. We are in process of acquiring 5 separate properties from 1031 and these items are requiring us to bring six figures in additional equity to closing tables. With that said, we are able to defer a large amount of taxes. BTW, we are doing this with an syndicated LLC.

@Lane Kawaoka, if you don't mind, please elaborate further on, "I did one a few years ago when I traded 2 properties for 9 turnkey rentals and totally regret it. Reason being is that it is not a like kind exchange with LLCs (private placements / syndications)."

Best of luck Michele!

Just want to add 2 points:

-"you think promising a preferred return"      Nothing should ever be promised, real estate is a risky investment.  Syndicators should never use this word anf passive investors should understand preferred returns are not guaranteed.   

-As for loans, in addition to the Net Worth=Loan Amount requirement, there is also a Liquidity requirement....maybe 1 year of mortgage payments and this is above what the GP is putting into deal.  

I have used Homebanc before and currently working in closing 120+ u it portfolio with them.  They were good to work with.  Best of luck!

Dustin, keep your foot on the pedal and do not let off. The 45 day identification period will fly.  Also, you will need cash for certain closing costs, DD and loan costs ad many of these expense items are not 1031able.  Your QI and CPA should keep you aware of that. Best of luck!

Thank you @Dave Foster.  Only reason question is being asked is due to a pre-existing seller timeframe required to close the first 4 deals that does not work with any lender's timelines.

Is it possible to:

-Identify 5 properties.  (Using 200% rule.)

-Use almost all proceeds to close first 4 properties in cash. Then about 2-3 weeks after closing finance property leaving 20% of cash in that deal.

-Then use cash and remainder of 1031 proceeds to purchase and close on 5th property with financing.

In the end would purchase 5 properties utilizing all 1031 money and replacement debt to newly acquired properties would have combined FMV greater than relinquished property.

Thanks so much.

Thanks @john for pointing out the following:

2. If your end game is to complete a 1031 exchange there is a question whether your cost seg property will qualify. You can only 1031 real property under the new tax reform plan. Everything broken out as personal property may be taxable "boot" and subject to depreciation recapture during a 1031 exchange. 

There seems to be much confusion as no formal case law decisions have been issued on this new law yet.  This does create a bit of a conundrum if 1031 is a possibility for exit strategy.  Every property we acquire going forward will have to be carefully analyzed  to see how much we want to maximize the depreciation and risk the FFE "loss" on a 1031.

Just throwing this out there.  Was the original 209k calculated correctly?  Was depreciation utilized on original property?  I believe the tax implication on depreciated portion (if no 1031) would be 25% depreciation recapture PLUS state tax....at least that is my understanding.