All Forum Posts by: Rahil Jain

@Brandon Bruckman we have about $600k left in the exchange. We are the highest tax bracket so the tax boot is steep if the the exchange fails. 

Thank @Dave Foster for the insight. Can you expand on the ID list? I presume you are referring to the ID list for the forward/regular 1031, right? In that case, we haven’t supplied one yet as the ID deadline is another 3 weeks out if extension is not utilized. 

Hi all,

I am in a bind regarding the 1031 deadlines with the CA disaster extension in play. Here's my situation:

We started a reverse-1031 transaction with a replacement property bought on Sept 29, 2022. We ID'ed the relinquished property on Oct 1, 2022. However, we couldn't sell the relinquished property by the 180-day deadline on Mar 29, 2022. CA had the wettest winter this year and IRS threw us a lifetime.

We claimed disaster relief as part of IRS disaster relief that allowed individuals and businesses to extend any deadline falling after Jan 8, 2023, to Oct 16, 2023. This effectively extended the 180-day deadline to Oct 16, 2023. We sold the originally ID'ed relinquished property of Jun 15, 2023, successfully completing the reverse part of the 1031 transaction.

We still have money left in the exchange. Now, my 45-day ID deadline for the regular 1031 would be July 30, 2023. If I claim disaster extension again, I can extend the deadline to Oct 16, 2023 with the 180-day closing date remaining as Dec 12, 2023.

My CPA is strongly advising against claiming the disaster extension twice, but he hasn't provided any guidance to support this claim. His stance is purely precautionary. On the other hand, the 1031 intermediary believes that it's a low-risk move, but they ultimately defer to the CPA. Therefore, while I would love the extra time to mitigate risk but not at the cost of the whole exchange potentially failing due to an audit. 

So, while I understand that it's not advisable to seek tax advice from strangers on the internet, I'd appreciate hearing your opinions before I engage RE tax attorneys in the next week.

Thank you all.

Rahil

@Keaton Lynn thanks for checking in. We are still working through the contracts and getting the final deal numbers. 

Good call out. I have factored those capital costs in my projections. 

Hi all,

My first post did not go into much detail about the business financials. Based on the questions received, we pressed sellers on specifics and now have greater clarity on the overall health of the business. Here are the details.

• Property: Vineyard Estate, 10 acres
• Primary use: Event venue
• 2021 P&L
  • Revenue: $258k
    • Site rental: $132k
    • Value-added service (e.g. catering, decor): $114k
    • Wine business: $12k
  • Expenses
    • Labor: $24k
    • Supplies: $64k
    • Maintenance: $32k
    • Business Services: $20k
    • Business taxes: $21k
    • Mortgage: $50k
    • Property tax: $13k
  • Net proceeds
    • Profit: $34.8k
• 2022 P&L is worse. Profit at $8k for $254k gross.

My read is that business is moderately distressed. I would pay $1.66M to acquire the business, which would 3x EBITA (~22k avg) + Assets (permits, chairs, tables, etc, $100k). The RE appraisal is likely closer to $1.3M per comparable and the seller themselves.

Deal Strategy: I want to make an offer at $1.46M - all cash with 30-day closing and all contingencies except financial. We have proof of funds for this amount and can get a loan later to save personal funds. This might seem like a lowball offer, but I have a hypothesis. I believe that most buyers would need financing to buy this property. And I think that financing would be hard to get because of the low appraisal value and the poor financial performance of the business. I also know that the sellers are eager to retire and move on. They wouldn't want to deal with any hassles or delays. I hope that they would see the value of my offer: a quick and easy sale with no risk of falling through. I also plan to rationalize why I think their asking price was unrealistic and why my offer was fair. I will also write a letter to tell them how much I loved their property and how passionate I was about their business.

What are your thoughts on evaluation and deal strategy? Anything I am missing or double counting?

Great questions - thanks. 

1. The owners took home the profits. No salary or payout as part of expenses. 
2. That's covered. 
3. Its contracted out. 
4. Its more than needed. We probably will scale back as wine is a loss leader for them. Events is where money is. 
5. No, possibly not. 
6. Domestic well is sufficiently powered in this area. 
7. Lifestyle choice. Most weekends are gone. 

Hello everyone,

I am a real estate investor who currently owns several short, mid, and long-term rentals along the west coast. I also have experience in the hospitality industry and am considering purchasing a wedding venue. Currently, I am in the process of a 1031 exchange and have $600k left in the exchange.

The property I am considering is a vineyard listed at $1.65M. It spans across 10 acres and boasts roughly 4 acres of mature vineyards, a single-family residence, parking lot, pool, wine tasting room and cellar, multiple smaller structures (barn, storage, garage), and beautiful landscaping. The property has been appraised at $1.30M.

The venue generates consistent revenue of $250k ARR from weddings and wine sales, but operating costs stand at approximately $150k, not including any debt service. The current owners are retiring, but willing to assist the new owner by offering guidance and support. I have met with them and they are interested in selling to a young family they can mentor.

The property has all necessary permits and licenses in place, and the owner confirms that it took them two years and $100k to obtain them. They are transferrable, and the county has confirmed this. The property has generated significant interest, with four showings within a week of listing. According to the listing agent, some prospective buyers may be unable to bridge the gap between the appraised cost and the list price, giving us an advantage.

The list price is based on real estate value plus 1x the forward revenue (booked) and permit costs, totaling $1.65M. I would appreciate your thoughts on this evaluation structure. Is this typical, and what would be an appropriate multiplier for forward revenue for commercial real estate of this kind? Is there anything else missing from the evaluation calculation?

Thank you for any insights you can provide!

Rahil

Super - feedback is unanimous. I will go with your all recommendation - thank you

Hey all,

I am using this long weekend to set up a booking site for our backyard cottage listed on AirBNB for short-term rental. This site will serve repeat customers who usually visit local and nearby families and friends. They make up about 20% of our guests. These customers will discover the direct booking website information during their first stay with us. I would like a website name that's easy to remember and recall because the guests will misplace the business card they make take along. Some ideas include:

• 1. Brandable name for the place, e.g. moosecottage.com, denaliplace.com
• 2. Description of the place, e.g. studio1bdseattle.com, cozyinwillowglen.com
• 3. Address of the place, e.g. 2330stcarlos.com (remember these are for repeat customers, however including the address may make any active outreach/ads riskier),
• 4. Totally unrelated yet catchy, e.g. cozmoda.com

Anything other ideas to help creative juices flow. I can share technical details once everything is set up and confirmed to be working. Thanks as always!

thanks @Kevin Luttrell - you are correct. Just to share my findings from today for greater benefit of the WA community. So far, only Key Bank is willing to entertain this situation. They can do a home equity loan for 80% LTV at about 10-11% interest rate. They will not do a HELOC. Verity credit union is also open but they are capping max loan amount to $250k or 70% LTV, whichever is smaller.

On a related note, I am curious to learn if it's required to disclose that a property is under a sale contract and in escrow. My understanding is that this is not public information yet, so am I limiting my options by being upfront about this?