Menlo Park, CA2018-05-16T15:48:24+00:00

Project Description

1031 Exchange | Case Study | Menlo Park, CA

Investor Profile: The Inheritor

A single mom in her mid 50’s with a 16-year-old daughter inherited her childhood home in Menlo Park. The property was producing $5,300 per month in rent for her. She currently lives in a 1 bedroom apartment in San Francisco and pays $3,500 per month in rent. The family home was put on the market in September and sold for $2.5 MM.

The Problem

A large percentage of her net worth was tied up in the family home. She had a $2,000 per-month negative cash flow problem and high debt. There was also a possible large capital gains tax of $600,000 if she sold the property outright.

The Solution

We used a 1031 Exchange and purchased a personal home for the client in San Rafael for $875,000, and a 5 unit investment property in Portland, Oregon for $850,000. She took out around $600,000 from her Exchange for liquidity and to pay down debt.

She will rent out the San Rafael home for 2 years which will help defer taxes. She will then move into the San Rafael home in 2 years to reduce her monthly housing costs in the future.

Investors Goals

  • Increase Income

  • Pay Down Debt

  • Buy A Home

  • Defer Taxes

Triggering Event

  • Inherited Property

  • Equity In-Balance

  • Property Underperforming

  • Cash Need

Transaction | Details

Property Sold | Exchanged

Menlo Park, CA

Original childhood home in Menlo Park.

  • Number of Units: 1
  • Property Type: SFR
  • Yearly Income: $63,600
  • CAP Rate: N/A
  • Sales Price: $2,500,000

Replacement Property 1

San Rafael, CA

The client will rent out this San Rafael property for 2 years which will help defer taxes and generate income. She will then move into the property after 2 years to reduce her monthly housing costs due to the property being paid off.

  • Number of Units: 1
  • Property Type: SFR
  • Yearly Income: $52,800
  • CAP Rate: N/A
  • Purchase Price: $875,000

Replacement Property 2

Portland, OR

This Multifamily property will be the clients main asset (investment) moving forward. It will provide the income she needs currently and in the future.

  • Number of Units: 5
  • Property Type: Multi-Family
  • Yearly Income: $60,000
  • CAP Rate: N/A
  • Purchase Price: $850,000

1031 Exchange | Results

+ 1

Properties

$112,800

Annual Income

$450,000

Taxes Deferred

4 Years

Break Even Point

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