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jtf945

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Posts: 32
Reply with quote  #1 
I have two rental properties in Laurel MD.  I am receiving offers in the mail constantly to buy my properties from three different people.  When I purchased the properties I was a resident in MD, I lived at one of them and the other I purchased as an investment.  I have since retired and both are now rental properties and both are occupied.  I am now a resident of Delaware and I would like to sell my properties and use the proceeds to buy something closer to where  live now.  Has anyone had experience with this type of sale of properties where the buyer claims no closing cost etc.  I know things on my end need to be done in such a way that I do not get burned on the taxes if the funds come directly to me.  Should I consult a lawyer in Delaware or Maryland to make sure I am protected. . . 
AccidentalRental

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Posts: 146
Reply with quote  #2 
You're describing a 1031 Exchange but I think your 'offers' are going to be all cash, low ball offers.  They just want to see if you're a burned-out LL who will cash out for cheap.

I personally haven't done a 1031X yet but I understand it's very complicated.  You need to work with a trusted 3rd party who handles these type of deals.  A lawyer is advised to handle the paperwork as well but I would look for one who knows the 1031X process.

1031X Process

You have to (1) identify a qualifying replacement property within 45 days of the sale of your original property and (2) close on the new property within 180 days of the sale of your original property.  And as you said, you can never touch a dime of the cash.  Any leftover cash gets taxed pro-rata.

Personal Property Gain Exclusion

Regarding the property you once lived at - If you lived there for 2 of the last 5 years then you can sell it without the 1031X and not be taxed (up to $500k gain if a joint tax return).  If not, then you need to do the 1031X on that property too.

I've looked into this myself but decided against it and am opting for a cash-out refi instead.  I'll keep the property for a little while longer and continue to manage it in the meantime but I get a good chunk of cash to reinvest now. 

Maybe you can do something similar if you have enough equity?  You could even pay a PM to manage it for you.

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LLinVA

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Posts: 465
Reply with quote  #3 
If that didn't give you your answer, I would definitely talk to a CPA first, they should be able to help with the tax side of things. Anything else may require a lawyer and/or real estate agent. 

I think it's a great idea to get rentals that are much closer to you (within 30 minutes or so).
LocalHero

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Posts: 13
Reply with quote  #4 
The two previous answers are spot on.  I have a handful of rentals and am constantly getting letters/postcards asking me to sell.  Unless you're willing to sell your rentals for considerably less than they're worth, you'd be better off using a Realtor (disclosure: I'm a Realtor) or if you have the experience and are willing to put in the effort, sell them yourself.  That process has been made a lot easier these days with Zillow and similar sites.   You can also pay a Realtor a minimal fee to get it listed on the local MLS for more exposure.  (you would still be handling the listings, negotiations, etc)   You would still likely need to pay a buyer agent's commission in that scenario, but you could save typically 2.5% - 3%.

As for the 1031 exchange... yes, you have to follow the rules exactly and it can be tricky but a CPA or 1031 experienced Realtor can guide you through it.  
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