All Forum Posts by: Steven Hickox

Dear Christian: Is he purchasing 100% of the real property interest owned by an LLC that he owns 50% of? If so then this is perfectly ok.

Dear Bigger Pockets:  We make money helping people with 1031 exchanges, but in truth our most successful client's only sell the properties that are underperforming.  Any property with which they are happy with the financial performance, they keep, long term.  Then they use their entire portfolio to refinance and get tax free cash as needed.  Of course you need to get to a certain size to make this work.  For you the important thing is that you are locking in inexpensive financing at low rates.  Always a good plan esp if the market moves down.  Hope this helps.  

Dear Tom:  I good real estate broker can help make sure that you are buying a well built and well designed and well financed home in the right location in the Denver area.  All of these factors are important and your real estate broker should have a professional opinion about all of these things when you use them.  A real estate broker, used correctly, can keep you out of trouble and help make you money.   Buying you first home is definitely the place to start investing as the tax advantages are so much better on your principal residence.   I suggest that you buy an entry level home with the thought of keeping it long term and renting it when you are able to move up.  Then pay down the mortgage as fast as possible.  I know this is conservative and boring advice but it does work and you can sleep at night too.  Sincerely,  Steven Hickox.

Dear David:  Just to answer your question about depreciation recapture when you trade down in value in a 1031x.  The general thinking is that you will be taxed on the trade down in value at the highest rate possible or at recaptured depreciation rates (limited of course by the actual amount of depreciation recapture in your case).  For example if you sell for $1M and you have a basis of $500k and $250K of accumulated depreciation and you trade down in value to $650k, then $250k will be taxed at recaptured depreciation rates and $100 will be taxed at long term capital gains rate.  Clear. Steven Hickox.

In Colorado the Eastern slope is booming and buying property at below market prices is very hard. Too many investors chasing right now.  On the western slope unemployment is rising and prices are falling except in the resorts which I am not sure about.  My limited experience with resort property is that it neither cash flows nor appreciates, but I only ever owned one such property.  There will be plenty of people trying to part you from your $500K.  Be very patient with your decision making.   Like in everything you must first be sure of return of capital before getting return on capital.  Best wishes.  Happy holidays. Sincerely,  Steven Hickox.

Dear Ryan:  It sounds like the current tenant is pulling down the value of your property for the next two years, til 8-18 right?  You will not be able to sell or refi at what the property is "really| worth until these tenants move.  I would just stand pat on this and try to use every dime to pay down your existing mortgage for the next two years.  Patience.  

Dear Chris:  You ask a difficult question.  Since this is a duplex I assume that you lived in half and rented the other half.  Now you are renting the whole thing.   If this was a sfr that you lived in for 15 months and then moved for work you could have deducted 15/24 x $500K or the total appreciation which ever was less.  Yes that is the correct formula.  But you converted your principal residence to income property 14 months ago and before you had lived there for 24 months.  I don't think the law gives a clear answer to the question: Is any of this eligible for tax exclusion under IRC section 121.  However, we do know that the entire sale is eligible for tax deferral under IRC section 1031.  So why not just 1031 exchange it?  Finally even if some portion is eligible under 121 ALL of the depreciation must be recaptured, unless of course if you complete a 1031x.  So maybe 1031 exchanging the whole property is better than hoping for some small 121 eligibility but including recaptured depreciation.  I know this is not a complete answer but its close.  

Dear Nick: ALWAYS hold your real estate investments in SINGLE MEMBER LLCS. You must be the only member even including your wife. If you need partners then each partner creates their own single member LLC and you hold title collectively as tenants in common. A single member LLC does not need a separate tax ID number but can be operated under your own SS#. Also it need not file a separate tax return.

Lenders look at these factors: 

Your ability to earn income independent of your real estate investments.

The LTV of the property that you now own.

The rent to debt service coverage, that is by how much does you noi exceed the debt service.

Your experience as an investor.  

I would go and speak to a small local bank and offer them a blanket 1st mortgage on the property that you now own and on the property that you plan to purchase.  Give them double the collateral that they need to feel safe.  

Dear Laren:  I have been a QI for 23 years now and Drew is exactly right.  There is no holding period in a 1031x.  Instead the relinquished property and the replacement property must both be "held for investment."  And the investment intent is measured at the time of purchase.   Of course rapid resale of a property is one indication that you did NOT hold it for investment, but there are other facts that can rebut this.