All Forum Posts by: Tony Kim

Hi Dave,

I'm having trouble understanding the part where you say that even if the replacement property was sold later on without at 1031 exchange, the tax burden would be less than if it was not acquired via a 1031 replacement. Wouldn't the basis be larger if the property is purchased conventionally than via a 1031...thereby creating a larger potential tax liability?  And wouldn't this be even more true if the exchange was being done via multiple properties because the entire basis of the sold property would not be transferred to just one property, but ratably allocated among all the properties?

I'm a total neophyte when it comes to the 1031 process and so I'm worried that I'm not fully understanding the cost basis transfer. Would the pro-rata cost allocation actually be aggregated with the actual cost of the replacement property?  If true, then I can definitely see the tax advantage...but my understanding is that the total cost basis of the replacement property or properties, upon transfer, would be equivalent to the exchanged property.  

@Brannon Hamby  Unless you held the property for a very long time and have depreciated its basis to zero, your tax liability from capital gains will probably be different than the $210K you mention in your post.

Also, you mention that you sold the property already.....are funds still in escrow? If you want to keep the 1031 option open, just be sure you don't take receipt of any funds. Sorry if I'm telling you something you already know, but funds have to be transferred to a QI escrow account in order to maintain 1031 eligibility.

I'm in a potentially similar situation. I just put one of my properties on the market and am mulling over whether or not to put up the fees associated with a qualified intermediary. I'm in Los Angeles and am currently looking to 1031 this property into a threeplex or fourplex here in the city. If it works out and I can find a good property...then great! If not and I decide to put the money into an Opportunity Zone fund or just pay the capital gains tax and put the money into a syndicated crowdfunding deal, then the QI fees will have been wasted. 

I agree with @Ross Midwest. Some schools have a way of embellishing these types of statistics. 

Also, I don't mean to be a jerk or anything, but if you are 38 and earning less than 70k in NY, then I honestly don't think getting an MBA will increase your chances much of vaulting your career into something that makes over 100k. 

You really need to take a hard and honest look at why you are still only making that much and what you should do to increase your earnings going forward. What kind of hours are you putting in at the office? How have your performance reviews been? Are you networking with people within your industry? And probably most important... have you been looking at other positions? 

The economy has been so good for the coastal states for so long now... I work in finance also and probably get at least two or three emails or calls from recruiters every week asking if I'd be interested in switching jobs. Why not look for other positions that pay more? A degree can open some doors, but not having a degree is by NO Means a glass ceiling toward a six figure salary. 

Mom and Pop Investor is a term of endearment. Like I said in my original post, there is NOTHING wrong with the way you invest. Sorry if you felt insulted.

You like real estate because you can touch it? Wow, Mom & Pop investor mentality at its finest. 

There is nothing wrong with your preference because you do what works for you and what is comfortable for you. Just understand that there are risky ways to invest in the stock market and also safe and solid ways to invest in the stock market....just like there is in real estate. You hold property at 80% LTV in poor neighborhoods while making $200 per door...to me that's extremely risky and akin to gambling. On the other hand, you own a portfolio of SFR's with little to no debt in A or B+ neighborhoods, then you have a solid investment.

Also, there are arguably more lucrative ways to invest in real estate other than the direct, hard ownership in which you are describing.

“Everybody wants to be a bodybuilder, but nobody wants to lift no heavy-*** weights.”

~ Ronnie Coleman

Kinda like Real Estate....everyone wants to be financially independent or rich, but not everyone wants to put in the time or maintain that singular determination required to not let anything get in the way of accomplishing that goal.

This might be misguided but Chicago is out for me due to the property tax rate. Also, I'm pretty sure Chicago is one of those places where you'd best live in the area before investing. Either that or have someone you trust 100% to select a property for you. Native knowledge of the Chicago area is crucial in my opinion.

With that said, I'm pretty sure the word hubris is being used incorrectly here.

Exactly... you don't know the numbers on the OP's house. As such, it's quite amazing to me that you can make an assumption that his capital gains would be significantly north of 500K.  Maybe they are, maybe they aren't....which is why I stipulated that number in my original post. Because unless his gains are higher than 500K, converting it to a rental as a tax strategy is terrible advice.

I don't see how that can be considered an advantage. If you're going to look at it from a tax standpoint, the advantage is most likely greater if you sell.  As long as you've been living in your property as your primary for 2 years, then you won't be liable for any taxes associated with capital gains up to 500K (or half of that if unmarried). 

I don't know...I've seen folks with money do worse....like sell or take equity from their prime coastal properties and invest in OOS properties that cash flow well per their pro-formas but are generally occupied with tenants who have a special affinity for trashing the properties they occupy. In the meantime, they won't be able to sell these properties at their purchase price for another 15 years (or when there is another incredible run up in RE prices). But on the flip side, at least they aren't stuck with all that dreaded 'dead equity' :)

Reg D really needs to be updated, IMO. In some states, this status has lost a lot of meaning since earning 300K is pretty common. I would say that more than half the folks in my company earn well over 300K (As a back-office accountant, I'm in the bottom half). I became accredited because the value of all my SFR's in Los Angeles exploded.....would I call myself a sophisticated investor? Hell no! I'm just some fool who happened to buy a couple properties right after the great recession and just rented them out and didn't even realize till about a year ago what their values were.