Portland Real Estate Blog

We’ve decided to take some of the proceeds from the sale of NE Ivy (the relinquished property in 1031 speak) and pay the capitol gains on it. The majority of the money is being used for the down payments on two new properties. The trick is that the IRS doesn’t allow the 1031 Exchange company (the accommodator) to release funds to us until:

1) the end of the identification period if no property has been identified
2) all identified property has been acquired or
3) the 180th of the exchange.

Even though we will have closed/acquired all of the identified property prior to the 45th day, the funds must remain in the account until after the 45 days are up.

We now have accepted offers on two properties for our 1031 Exchange of NE Ivy. Cash flow has become the biggest issue. Simply said, neither property does.

Rentals are tough (or at least the no-brainer they used to be). Used to be that 20% down was good enough to create positive cash flow. That’s no longer the case. We’re figuring both houses to come out about $400 a month short. The rent will cover the mortgage but not taxes and insurance. We’ll hold them as rentals and then remodel them before selling. Appreciation has been holding over 10% so we can suck it up now for the long term gain. I think as we see interest rates rise, appreciation may decrease but property isn’t going to get cheaper anytime in the foreseeable future in my opinion.

If I lose $4800 for a year of owning a $300,000 property and sell it two years later at 10% appreciation ($363,000). I think I can live with the loss (and the tax advantage gain for owning the property).

Craigslist or www.oregonlive.com is usually the best place for rental comparisons. I’d rather under-rent a little and keep it occupied than to hold the place vacant for any amount of time.

74 NE Ivy is now closed. It closed May 10th for over asking. The clock is now ticking. We have 45 days to identify what properties we want to buy and 180 days to actually close on them. Day 45 is a Saturday and there are no extensions for any reason: weekend, Christmas, or stupidity. This means that we have to let our Qualified Intermediary know by Friday, day 44.

Our current plan is to buy two properties with the proceeds from the sale of NE Ivy. We have to spend at least the amount of the sales price and maintain the same amount or increase the debt the property had on it the day it closed. There would be no point in just buying one property as it would maintain our existing leverage position. Our plan is to buy two properties. We’ve made an offer and should hear back today on the first. The second property is still up in the air.

*** Disclaimer: this is not tax advice- consult an accountant with specific 1031 Exchange questions!

We’re selling NE Ivy St. as an investment property. The price difference of what we bought it for in 2001 and the selling price now would be taxable as a capital gain on our income taxes. The 1031 Exchange allows us to reinvest the money in another property (or multiple properties) without paying capital gains.

Wikipedia has a great synopsis of the way it works.

In a nutshell, we have 45 days from the day NE Ivy closes to identify the property, or properties, we are going to purchase. We have a total of 180 days from the closing date on NE Ivy to close on the new property.

We will never touch the money. It goes from the buyer of NE Ivy to a Qualified Intermediary (also known as an Accommodator). The QI holds the proceeds from the sale until they are transferred to the seller of our new property. Anything that finds its way into our bank account is taxable as a capital gain.

So, the burning question is what to buy? Don’t know the answer. I do know that we are not going to take on any more rentals as a landlord. We will hire a property manager to do that for the foreseeable future.

74 NE Ivy was listed on Saturday evening. An agent in our office held an open house on Sunday that was well attended. We got an offer on Sunday night. Monday morning, we had accepted the buyer’s counter to our seller’s counter and we are now under contract to sell the house! The buyer’s home inspection is on Saturday.

This is the first post on the sale of our property at 74 NE Ivy. I’ll write about the sale as often as pertinent. We bought the house as a fixer in 2001 for $142,000 on contract from the seller and proceeded to do a permitted remodel into 2002 before making it a rental property. We will be selling it as a 1031 exchange (more on that later). The renters moved out at the end of February and it took until yesterday to get it back into “showroom condition.” The clean up included new carpet, refinished fir floors, new appliances, fresh paint and the claw foot tub refinished by Stanley Tubs. It is listed for $319,900.