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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tradelite who wrote (28032)	3/14/2005 12:13:51 AM
From: Doughboy	Read Replies (1) \| Respond to of 306849

What are you planning to do with your new wealth? Have fun. Plowing the money right back into the real estate market, reluctantly. I owned the Chevy Chase house several years as a rental, so I cannot get the 2-year residential tax exemption. Taxes on the capital gain would be around $100k. So I've decided instead to do a 1031 exchange. I have lined up a retail property not too far from where I live, with a video store, a coffee shop, and another retail space (a mix of local and national tenants), with long term, triple net leases. It has a CAP rate of about 7.5%. Since it's more costly than what I reaped from the house, I've brought in a couple of friends and family members as investors, and we'll do it together. The commercial market is like swimming with the sharks. First, I had one bite taken out of me by the seller, who reneged on the first deal we had. Then, in quick succession, the commercial mortgage broker and then my own real estate brokerage each took bites out of the investment, knowing that I was inexperienced and in over my head. There is no doubt in my mind that what was done was highly unethical if not illegal. (Maybe I explain more fully when this is all water under the bridge.) I still don't know whether this is going to work out. In many ways it would be so much easier for me to just take the money out of my home sale, pay the taxes on it, and retire all the mortgage loans I have out. That would eliminate about $4000 in monthly payments, risk free, and I could live without any debt. (I would also lose the mortgage interest deduction, though.) The new commercial investment would net me about $6000/mo., 50% better cash flow than the debt reduction plan, but with a high degree of risk (I'd have to borrow more than $3 million.) Frankly, it's really the tax issues that are driving me to leap into another RE investment (both the avoidance of the capital gains tax, and the maintaining of the interest deduction). Am I being stupid? Time will tell.