A few weeks ago, I received a call that had a serious impact on me. The caller, whom we will name Becky, found our website and decided to contact us. She had a lot of questions—she wanted to know about 1031 exchanges, timelines, and processes. I quickly realized that something seemed off. When I asked her if she was selling a rental property, she hesitated and informed me that she was not. She stated that she was just researching and promptly ended the conversation. I was intrigued by her outlook, but I was not able to collect enough contact information from her and let the curiosity dissipate. Two weeks later, she called back.
Becky explained why she had called: she was renting a home. She has been renting it for a while and loves everything about it. She loves the neighborhood, the schools, and the friendly grocery store clerks. She loves going on walks and enjoying the beautiful views of the Flatirons, a string of mountains just north of Denver, Colorado. For her, this house has become her home. There was just one slight problem she was trying to solve; she called us because she thought we could help solve that problem.
The Problem
Becky has been trying to broach the subject of purchasing the home from her landlord for some time now. There was one thing that kept getting in the way: taxes. Becky is a CPA by trade, so she thought this would be an easy solution. She started to research the tax implications of selling investment real estate and learned why the landlord was hesitant to sell the home. He would have to pay capital gains, depreciation recapture, and net investment income tax (NIIT), along with other state taxes. Her call to us was to learn more about 1031 exchanges so she could present a solution to her landlord.
The Solution
As I learned more and more about Becky and her desire to purchase the property, it dawned on me just how genius the approach of a renter negotiating the purchase of a home with their landlord is. If the renter can solve the landlord’s primary problem—the pending tax liability when the rental property is sold—then homeownership can now be a viable option.
The Approach
Your landlord may not be comfortable with selling their property to you, even if you meet all of the criteria for purchasing the home you are currently living in. So, like Becky, talk about taxes and how there is a way they can defer paying those taxes. Solve their most challenging hurdle by presenting a solution: a 1031 exchange into a Millcreek Commercial Property. The landlord will be able to defer all tax related to the transaction, enjoy passive income in commercial real estate, and retire from landlording.
