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Never Pay Capital Gains Taxes On Your Investment Property Sale

What a 1031 exchange is, it basically is a tax vehicle that allows you to trade up to larger properties. Let’s say for instance you have a three family and you have some equity and you’re thinking about selling. If you sold that three family you are going to get hit with a capital gains tax, or you’re going to hit for capital gains taxes on the sale of that property.

If the value of the property went up, if you’ve obviously been taking a depreciation allowance every years so your basis is down, the federal and state government are going to say, “You received capital gains from this investment and you are going to get taxed on the sale. To avoid capital gains taxes and to use that money or the portion of tax that the federal government would have taken, to enhance your portfolio it makes a lot more sense to avoid those taxes and use that extra cash to grow your wealth and put it into the next property.

What a 1031 allows you to do is to avoid capital gains taxes, long as you’re following the IRS rules and you are trading up or using the proceeds of that sale to fund your next property. It’s typically used to trade up for a larger property. Let’s give you an example, I sold a $600,000 property and I bought it initially at, let’s say $400,000, I paid the debt down to three, and I was probably going to have a capital gain of let’s say around $200,000 on that property, if not a little bit more.

If I get hit with a capital gains tax and then use the proceeds to invest, I have less money to invest. A smarter, easier way would be to, not easier way but a more intelligent way, would be to use a 1031. Be within the law use a 1031 exchange to trade up to a larger property. Basically what you have to do is you have to use a 1031 exchange company and you have to follow certain guidelines to avoid that capital gains taxes. You have, I believe, identify a property within 60 days and close on that property within 90 days.

Those laws are changing depending on what administration is in, and where we are in housing and how the housing market is doing. Those are the type of things that you want to make sure, using a qualified company, because as those laws move and the rules change, you want to make sure that you are within compliance so you do not get audited or get hit with tax after the exchange

Make sure you’re following the time tables and identifying your property and purchasing and securing the property within a solid period of time. That’s what a 1031 exchange is. That’s how you can use it. Some of the best and the brightest real estate investors in the business are using 1031 exchanges over and over and over again to trade up to larger and larger properties and keep their money moving. They’re constantly keeping their money moving.

For more information about 1031 exchanges or to be connected with a 1031 exchange company, please click the link below in the description, tell us a little bit more about yourself and what you’re looking for. We can certainly connect you with some of the companies that we use on a regular basis. Thanks, hopefully this was helpful.

Financing

 

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New Construction Duplex – Get It Before It Goes On The Market!

50 Peacevale Road, Dorchester MA  – $595,000

Expansive two-family home offering quality finishes and peace of mind, to make you love coming home.

Designed and built to Oxbow’s high standards of elegant, efficient and smart. This home combines vibrant exterior detailing, thoughtful interior elements that anticipate the need for privacy and the opportunity for entertainment with the newest systems, energy efficiency, and materials found only in new construction. We want you to love coming home.

First Floor Unit offers 2 bedrooms with granite counter tops, hardwood floors, stainless steel appliances and much more.

Owner’s Unit offers 3 bedrooms, 2 bathrooms, stainless steel appliances, granite counter tops, hardwood floors, in-unit laundry, expansive finished attic space. This unit provides the perfect opportunity to let your imagination run free with numerous options for the attic space. Property comes with highly sought after off street parking.

Property Specifications

3,680 square feet of living space

2 Bedroom/1 Bath First Floor Unit: 1,220sf

3 Bedroom/2 Bath Upper Floor Unit: 2,460sf

Full unfinished basement

Fully Equipped Kitchens

Washer and Dryer Hookups

Off Street Parking

Please contact Denisha McDonald for more information and to schedule a showing. Denisha@MandrellCo.com or 617-982-3337

50-peacevale-first-floor-ff 50-peacevale-second-floor-f 50-peacevale

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On December 14th, 2016 I finally closed on my first rental property! For over a year I have been educating myself as much as possible in real estate investing to one day finally take the plunge. That day finally came. A couple months ago, a property on the MLS cam back on the market. It was a 3-family in Mattapan that needed a decent amount of work to get it up to rental condition. Listed at 390k, I initially tried to get the property at 350k, a price that, once I ran numbers, felt would put me in the best position when it came time to refinance out of my purchasing loan, which I ultimately used hard money for. I submitted the offer with no contingencies, all cash and gave up the buyer’s side commission because I knew on the back end it would be worth it, but that was still not good enough and after some continued negotiation, had to settle for purchasing it at the full asking price. This would create additional challenges, but at the end of the day, if you believe in the deal, you’ll make it work.

Financing the deal was another challenge as I really wanted to find a lender that would finance a percentage of the purchase price and renovations. It was not until it was too late that I found a couple lenders where this was possible. At least for the next one, I will have this component lined up for a more streamlined process. I ultimately had to settle on using hard money, which is great for a short turnaround, but is so incredibly expensive to someone like me who hates to waste money. When it comes to hard money, if you have any other option, please use it instead.

Since the closing, it has been a mad scramble to start the renovations and make sure everyone is working constantly and as efficiently as possible. This is just another thing you will have to do when you slightly overpay for a property. Despite the challenges early on, I couldn’t be happier or more excited to have closed on my first rental property. Every day that passes makes me want to find the next deal more and more. Just always be ready for the more than likely roller coaster ride!

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In our latest series of educational webinars, we explored the topic of self managing your rental properties vs. hiring a property manager. In the fourth and final section of the webinar, we talk about six ways to create more value in Boston rentals, creating a “preventative maintenance schedule” and should you hire a professional and what do they charge.

For more resources and tips on managing your properties, please contact us.

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