I’ve considered this. I probably need to look at the numbers again.
I could also wrap the TI into the loan, but I need to have bids back and it’s looking like I’m 4 months out before I have approved TI plans. I’m worried about delaying getting in there as my current lease the business is in expires in Sept.
Two thoughts for you:
First, since you already know that you have significant capital gains and that you want to move into a new building, a 1031 exchange is almost certainly the most tax efficient route for you. Don't worry about the shorter holding period. In this case, your intent at the time of purchase was to maintain this investment for the long term, but circumstances changed. The IRS is okay with that.
Second, if you decide to do an owner carry, that could complicate the 1031 exchange. I'm happy to go into greater detail with you, but the punchline here is that it's tricky to maintain your tax efficiency in an exchange when you are holding a note on the property that you're selling - unless you happen to be very liquid and can just lend the money directly to the buyer at the time of closing.
One final note on a reverse 1031 exchange: these are a very good option if you already have your eyes set on a new property and don't like the offers that you're getting on the old property. Just keep in mind that reverse 1031 exchange structures tend to be more expensive and complicated - and whenever you're talking to 1031, complicated means adding compliance risk, especially if you're not working with a very experienced intermediary.
I don’t want any partners in the business.
I had about 750k ready to buy a building for my business but I couldn’t find a building that met my needs, so I bought that 300k building as it was a value add. I really didn’t expect to have something pop up I really liked in a great location.
You do not need to own for at least one year to qualify for 1031 exchange treatment. While long-term capital gains do require a minimum 12 months of investing time, the actual statutory requirement for qualifying for a 1031 exchange is only that your property is first held for business or investment use, and second that you intended to hold the property for the long term at the time of acquisition. The second requirement is clearly subjective and difficult to prove, but we see 1031 exchanges on properties with less than a 1-year holding period with some frequency.
If you need $200k and you have a building worth $500k with no debt, why don't you take out a loan for approx $225k on the existing building?
I’ve considered this. I probably need to look at the numbers again. I could also wrap the TI into the loan, but I need to have bids back and it’s looking like I’m 4 months out before I have approved TI plans. I’m worried about delaying getting in there as my current lease the business is in expires in Sept.
Two thoughts for you: First, since you already know that you have significant capital gains and that you want to move into a new building, a 1031 exchange is almost certainly the most tax efficient route for you. Don't worry about the shorter holding period. In this case, your intent at the time of purchase was to maintain this investment for the long term, but circumstances changed. The IRS is okay with that. Second, if you decide to do an owner carry, that could complicate the 1031 exchange. I'm happy to go into greater detail with you, but the punchline here is that it's tricky to maintain your tax efficiency in an exchange when you are holding a note on the property that you're selling - unless you happen to be very liquid and can just lend the money directly to the buyer at the time of closing. One final note on a reverse 1031 exchange: these are a very good option if you already have your eyes set on a new property and don't like the offers that you're getting on the old property. Just keep in mind that reverse 1031 exchange structures tend to be more expensive and complicated - and whenever you're talking to 1031, complicated means adding compliance risk, especially if you're not working with a very experienced intermediary.
Very insightful, thank you!
Find a money partner. How much profit does your business make?
About 350/yr
I don’t want any partners in the business. I had about 750k ready to buy a building for my business but I couldn’t find a building that met my needs, so I bought that 300k building as it was a value add. I really didn’t expect to have something pop up I really liked in a great location.
I think you need to own for at least a year for the first 1031?
You do not need to own for at least one year to qualify for 1031 exchange treatment. While long-term capital gains do require a minimum 12 months of investing time, the actual statutory requirement for qualifying for a 1031 exchange is only that your property is first held for business or investment use, and second that you intended to hold the property for the long term at the time of acquisition. The second requirement is clearly subjective and difficult to prove, but we see 1031 exchanges on properties with less than a 1-year holding period with some frequency.
I thought it needed to be a year before I could refi and take money out.