All Forum Posts by: Ash Hegde

I'd second @Dave Foster as a very knowledgeable person that can help.

Your understanding is correct. In your example, you are going to defer 100k of gain on the sale of house A, so you have 100k less in tax basis on house B, which would be 900k. When you sell house B for 1.1m, your gain will be 200k. 

This setup will not do much for taxes or liability. A single member LLC is disregarded for tax purposes, you can take the same deductions for renting the property if it's in your personal name. For liability, even if the LLC is leasing from you, you own it and would be liable in a lawsuit.

What you can do, is move the property into an LLC when you get past the occupancy requirement and refinance it in the entity. You'll have to do a DSCR loan and will not be able to get a VA or conventional if it's in an entity name though.

Great advice in this thread. The 1031 exchange and cash out refinance are both valuable tools, it really comes down to your goals.

Unfortunately if you put 3.5% down with FHA, the MIP will stay for the life of the loan and you would need to refinance to remove it. Rates are likely higher now, but it is worth a conversation with your lender. If your home went up in value and you are able to get a conventional refinance with no PMI your payment might end up being lower.

Good topic! A possible pitfall is closing on the sale and receiving proceeds before considering a 1031 exchange. Once you receive the proceeds it's too late. If you're thinking about selling an investment property, it's best to look into this option early in the process to see if it will benefit you. 

House hacking is a great way to get started! Michael had a good suggestion, you can use an FHA 203k loan for the purchase and rehab with as little as 3.5% down for up to 4 units.

You mention capital gains if you sell, but those can be deferred with a 1031 exchange if you are selling a rental and buying another rental. Just wanted to point that out in case it influences your decision. 

It's probably a good idea to take the contract to your attorney to make sure it's legit and more importantly, enforceable if something goes wrong. 

In this scenario I would probably create a new LLC with all 3 of you.

When you sell a property, the full amount would go to the LLC.

For taxes, the taxable income will be split based on the ownership percentage of the LLC, whether you distribute the cash or not - if you do a flip and want to keep the cash in the LLC for future investment, you will still have income in the year of the sale. A distribution is not considered an expense or income.

Hope that helps a little, but consulting a CPA is good idea.