Learn To Be A Fix and Flip Investor: Bridge Loans: Fueling the costs of 1031 exchanges

Wednesday, December 5, 2018

Bridge Loans: Fueling the costs of 1031 exchanges

1031 exchanges allow you to defer the payment of capital gains taxes, by reinvesting your profits into another similar investment. Most industries lost out due to last year's tax overhaul, but not the real estate industry. Real estate investors can still indefinitely defer payment of income taxes on profits earned from their ventures so long as they roll those profits into the purchase of another investment property. But there is a deadline you have to meet to qualify. If you need financing to purchase your next investment property, you might want to think twice about going to the bank. Learn why bridge loans are perhaps the best way to finance 1031 exchanges.

1031 exchanges are IRS policies and therefore regulated by perhaps thousands and thousands of opaque guidelines. For this article we are only going to focus on one:

You have to secure the purchase of your next investment property within 120 days for your next purchase to qualify as a 1031 exchange.

With Bridge Loans you risk less when it comes to 1031 exchanges

Going to the bank could cost you dearly when it comes to 1031 exchanges. Remember you only have 120 days to close on your next investment property. Imagine the noise from the TV show "24,"going off in the background as you try to secure financing for your next purchase. Day by day you lose assurance that you'll be able to acquire your new investment property on time.

For example, if you an active investor in single-family homes and your recent sale just closed, you might consider investing in a small apartment complex. Of course, the sale of a house isn't going to cover the cost of purchasing an apartment complex, so you need financing.

You go to the bank, and the loan officer points out your lack of experience in this area, they ask for more documentation. Days plod by, documents pile up, and sure enough, the 120-day window closes, and now you are on the hook to the IRS.

If the 120-day window passes, you will have to pay capital gains taxes on the profits you earned from that last resale. Depending on your earnings this could end up being a significant expense.

If you need financing to secure the purchase of your next investment property to complete a 1031 exchange, spare yourself the worry and the hassle and go to a bridge lender instead.

Bridge loans offer real estate investors the flexibility and certainty needed to complete 1031 exchanges.

• Certainty: Bridge lenders underwrite their loans based on the value of the property you want to purchase, which simplifies the application process. When it comes to bridge lenders, loans can close in as little as a week, well within the 120-day time limit imposed by the IRS.

• Flexibility: Bridge financing is just that a "bridge," between the initial purchase of an investment property and its eventual refinancing. You secure funding from a bridge lender, purchase your next property, complete the 1031 transaction on time and then refinance to a cheaper permanent loan.

Banks aren't going to move any faster just because you have a critical deadline, and when it comes to 1031 exchanges going to a bank could cost you dearly, so approach a bridge lender instead.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.