Section 1031’s Journey from Obscurity

Source: https://thinkrealty.com/section-1031-journey-obscurity/

The journey of the tax code pursuant to IRC section 1031 is striking when viewed against this moment in United States real estate history. Never before have U.S. real estate investors acquired and stood with so much appreciation in real estate in such a short period of time. Never before has the tax code as it relates to section 1031 been so straight forward and simplified for the real estate investor to sell property, recognize gain and roll that gain into a new property without the tax bite…

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Are you thinking of investing in real estate? But you don’t have enough money to accomplish this. In this article is a tip you are able to use as long as the person selling the property is willing to negotiate along.

To be fair, not every seller will be willing (or even understand) the concept outlined. Your best gamble is to find a land that the owner has great desire for offering it, whether because of moving, divorce, or frustration with the folks renting the property.

Actually, if you maybe currently renting and considering using this approach perhaps the owner would be glad to assist you! There are several variations that could be used depending on you and your vendor. Do they want the market price or are they just desperate to get out from the monthly payments – maybe facing foreclosure?

The easiest way is to take over their mortgage payments – called ‘assuming’ the mortgage. You will need to be approved by the first lender to assume the mortgage. If you can’t get approved for an assumable mortgage you could also try a ‘subject to’ assumption where you merely make obligations while the property remains in the seller’s name.

You take over the first mortgage and create a 2nd mortgage on the remaining cost of the property with the seller. Offer a high, interest-only payment for a short time period – 2 or three years. Rather than having the money sit down in a bank they could be getting a high interest over 2 or 3 years with the remainder due in full at the end of the term.

When the term ceases you ought to be able to refinance the cost, or perhaps you can sell. Unless you hit an actual bad market the value of the property should have risen by then.

A lot of mortgage lenders merely need to make a great investment. While your local bank could still be scared there are a lot of financial lenders that would wish to make a deal. Financiers like real estate. The mortgage is mostly around 60-70% of the value of the land, so as long as they know they get their money back in the value of the property if you default, they do not care what kind of revenue you make. Complete the deal with a 2nd mortgage done with the seller. In case you default they can still foreclose on the property and sell it, paying down the existing mortgage in the proceeds.

Now you can see the entire picture. It is better that seller and buyer can work hand in hand. In the event they can’t wait for a sale, you could still give them their initial price with a little overall flexibility on their part.

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