Anyone ever did one, or know anyone that did?
I just learned that they are available. It seems to me that builders and contractors would/could implement this into their arsenal and create a nice niche market for themselves.
What is an improvement exhange? Basically it allows an investor to purchase properties needing renovation or to acquire bare land and to build to the investor’s exact specifications. I quoted that exactly from Sandy Gadow’s book called “YOUR REAL ESATE CLOSING” COPYRIGHT 2003.
I’m definitly going to do some research on this topic, as it sounds very promising for some future plans that I have regarding the building and investing in strip malls.
Incidently, she does have a website at escrowhelp.com
blue
Just because you can, doesn’t mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I’m a hackmeister…they might be right! Of course, they might be wrong too!
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I've known about this since last year, when a Florida real estate agent said to me, "You'll of course be doing this buy seeking a 1031 exchange sale later, right?"
I was just kicking tires, thinking of spec house opportunities in a market that was appreciating wildly.
But I have looked into it, and see no reason why it would't work for just plain old spec house building.
Gene, I was thinking the same thing. I've got to understand a little bit about it. The one major problem I'm having regarding the spec thing is that the property acquired must be investment property, not property used in a trade or business. I would think it needs to be held for long term, not sold as a spec.
I'm too confused about this aspect....I gotta hit the books.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
A friend of a friend, over in Indiana, buys and sells income properties all the time. Residential housing, you know, tired old houses chopped up into 2- and 3-flats.
He has regular contractors working for him all the time, doing improvements, additions, and just plain maintenance on these joints.
Does maybe a half dozen transactions per year, with 1031 exchanges handling most everything.
How does buying a lot at, say, 75K, then "improving" it by building a house on it at maybe a cost of 175K, then selling the package for 295K, differ from using the same monies for buying a dump, doing a ground-up remodel, and flipping it?
My financial guy doesn't see any problem at all.
I do know this. If you want to keep growing it, shelter all the gains with the 1031 mechanism, you'll need a continuing supply of cash to fund each new build. An investor with a big string of rental ponies is seeing that stream in rent payments, but a spec house builder isn't.
But let us know what your research unearths.
Gene, I would assume that if you do a 1031 fixer, you still would keep the property for rental.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I think you guys a stretching this.
What I always understood was that the principal and profits need to be reinvested in a like proerty. The IRS has a fairly strict set of rules for this I believe.
Buying land and developing it changes the nature of what you have purchased.
Unlike buying a slum, fixing and turning it, and buying another slum.
Where's Tim?
edit I think 1031 pertains to rentals strictly.
Eric
I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Edited 2/24/2005 7:41 pm ET by Eric Paulson
Eric, you are confusing the definition of like-kind. Like kind refers to "real" property vs "personal" property. Land is real property, a mobile home is personal property.
The primary test of what you intend to do with your real property is in you own head. If you intended to use the real property as investment property, then it can be 1031 exchanged.
Some real property is used in a different way. It can be classified as being used for your trade or business and then it is not "investment" property. You are not an investor, you are a dealer. Dealers have different taxing regulations.
I know for sure that you can buy raw land and build some investment property on it and rent it out.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Seemed like you guys were skipping the rental part, as though you wanted to buy the land, build spec and sell and somehow engineer a 1031 exchange.
I don't think that can be done, is all I was saying.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric, I think Tim was skipping the rental part. As soon as he floated the idea, I raised that alert.
Essentially, a landlord could buy raw land, build a new rental to specs, and keep it for investment. All this can be accomplished using the proceeds from the sale of other investment property and get it tax free using the exchange.
I see this as a good alternative for those with smaller residential properties that might be thinking of getting out of that type business. For instance, if a guy owned ten rentals worth 1 million, that had 50% equity and 25% book value, it might be hard to structure a deal without the tax avoidance because of the tax consequences of a sale. But, if he 1031 exchanged it all, he could drop the 500k into new construction and keep a 500k loan and develop some nice commercial property.
Or, a landlord like Tim might sell three 50k properties, buy three 50k rehab projects and skip the tax burden.
There is a 180 day requirement to finish the rehab or construction.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!