All Forum Posts by: Nick Frey

@Chris Montgomery thank you very much for that thoughtful answer. I would definitely like to have a beer and discuss...I highly value the structural barriers to entry in the small and desirable areas of CO, this has been my entire thesis since 2012. I don't see those opportunities in SFH anymore, and I've always been curious about using MFH to address their independent (yet similar) housing crises. It's just almost impossible to bring units online! Which is why 4P has really been of interest.

Thanks again and I’d like to chat more offline.

@Chris Montgomery thanks for weighing in.  Your 4P fund is the main one I’m considering in that space.

correct me if I’m wrong on this: property owned by a partnership (files 1065 and K-1s) sells asset closing July 2021.  It would need to put money into OZ by mid-Sept 2022 based on required tax filing date (Mar 15, 2022) plus 180 days.

If that’s correct then I would get 1031 money back from QI at July 2021 plus 180 days (meaning mid-Jan 2022) and still have nine months cushion before OZ in mid-Sept.

On a related note, I’d love to hear your thoughts on MFH from a macro (national and political) perspective as it relates to net demand and supply.  On the demand side, do you see inflation causing lower incomes to lift / debts to effectively have less negative value / credit ratings improve and therefore seeing people qualifying for first homes?  Possibly a loose lending environment due to liberal politics making huge concessions for first time homebuyers, more down payment support, etc?

On the supply side do you see massive wealth dumping into funds like yours over supplying the MFH market over the next few years?  I see 1031 and OZ activity spilling so hard into new projects I can’t help but feel it’s more money chasing fewer opportunities and possibly creating a supply bubble over a mid-term time scale of 3-5yrs.

I've ridden the "equity wave" with SFR and see at least a mid-term top this year...or at least I'm not a buyer in this climate and partially a seller. But I'm wary of being a buyer into a market going in reverse due to macro issues...and no matter how strong the local environment looks, it's unpleasant to see that thesis overwhelmed by large-scale movements.

Thanks in advance (from a guy who’s very interested in investing in specifically what you do)!

@Sean Ross thanks a ton.  However I’m hearing conflicting info about (4) in your points.  I’ve heard that OZ is a backstop from the OZ itself (not from some random source but an experienced equity partner describing around 20% of their commitments originating from this failed 1031) as well as in my own cursory research.

could you elaborate / substantiate?

@David M. thanks for the anecdotal experience, that’s good to hear from a more “DIY” perspective.  I’ve always seen the risk in black and white, I.e. an audit = your life upside down for a year, no audit = all good.  But I haven’t done any major transactions like this before that would ever raise a flag.

The DST sounds less interesting because it's such low ROI. I understand the reasons for it, but I think it's meant for a point much later when you want to fully remove yourself from day to day ops.

OZ is more complex in terms of the tax consequences, but I would correct you only on the fact that you didn’t need to join initially when legislation passed in order to make it happen.  You just have less time before your initial cap gains are due, since all QOZ investments require a Dec 2026 deadline for payment of cap gains on what you put into the fund.  Note: it does NOT involve a 1031 of any kind, and can be used as a backstop for a 1031 process in case it falls through.

@Ashish Acharya sage wisdom and experienced advice!  I’d like to discuss a little more detail about this offline.  Suffice to say, whatever replacement property I get, it won’t be used for 121 as it will almost certainly be MFH, storage, or OZ.

Speaking of 121, what if part of the house is rented, but it’s still one’s primary?  Can you still get the 121 even if half the home is used as a lock-off rental?

I’m afraid of the unknown.  Never been audited!  I am not as concerned about this specific transaction as I am about what an audit entails and whether they then take the liberty to analyze my ten other partnership returns.

Do you guys think that going into an OZ fund would be less risk than a 1031?  I’d been contemplating that option prior to any thought about the STCG/1031 challenge, and believe I have a good case to go in that direction.

Honestly I am straddling the line between diving in further with MFH and more active-value-add versus doing the safer and much lower return route of OZ in CO...

Thanks so much @Ashish Acharya!  That makes great sense.

My only concern is that the property was held jointly with me and the other partner, I took the 121 exemption, and am now owning the property fully through LLC B and doing a 1031...within less than a year. I had full intent to keep it as a rental and can prove that, but I still am a little concerned about triggering an audit.

Do you think there could be a good argument to set a closing at 10/10/21?  With this kind of market, it might not be an issue, especially with the timing of ski season.  We could also rent it solid June-Sept and make a bunch of money on it.

Just don’t know what the risk level is with IRS red flags.

I've found this article which doesn't really provide a lot more clarity: https://www.hanson-cpa.com/hol...

I'm hoping to get someone who's been through something like this, either directly or as an advisor (accountant, attorney, QI, etc)

@David M. I was mistaken slightly—Property A was titled to me and the other partner individually, and this was how I was able to claim my 121.

LLC B bought Property A with the intent to hold for at least a couple years, has been rented continuously under a 6mo lease (Nov 15 to May 31) and basically I'm just seeing the market opportunity.

I hope that makes sense...the 121 is solid, I just don’t know about the 1031 with a sub-12mo time frame...

Thanks @Scott Esmail, actually I’ve been in touch with @Dave Foster directly about a related matter, and hopefully he can respond on this topic!

This could be a question for @Ashish Acharya...