3-Steps to Financial Freedom, Using Your Old, Run-Down House As A Launching Pad

What do you do with an old house that has no marketable value? Every inner city is teeming with people who own just such a house. You can't list it and you can't afford to fix it. You are trapped.

One way out is to trade-in this old house to launch your 5-year plan for financial independence. In short, you can use a 1031 exchange to trade into an income producing property in a better area.

How do you define the term "ugly house" anyway? We're not sure, but like pornography, we know it when we see it. We prefer the term this old house. The one redeeming feature is that this old house often has a lot of equity.

What do you do with an old house that has no marketable value? Every inner city is teeming with people who own just such a house. You can't list it and you can't afford to fix it. You are trapped.

One way out is to trade-in or sell this old house to launch your 5-year plan for financial independence. In short, you can use a 1031 exchange to trade into an income producing property in a better area.

How do you define the term "ugly house" anyway? We're not sure, but like pornography, we know it when we see it. We prefer the term old house. The one redeeming feature is that the old house often has a lot of equity.

When, if ever, does a "home" become a merely a "house" in the eyes of its owner? The change is imperceptible. It makes no difference whether house and owner matured together, or whether young owner(s) inherited this old house. When a home becomes merely a house that's the time to take action.

The purpose of this article is to help you take intelligent action.
The pleasures of an old house are undeniable. Or at least some old houses. Old is not always ugly. Old is also antique and history. Old is charm and elegance.

As we grow older, we have to cope with the pain of an aging body. So must we cope with the "pain" of old house ownership. There are really only 3 simple steps to dealing with the kind of house we have been talking about:

• Restore it
• Sell it
• Exchange it

1. Restore it. Restoring the old house is always an option. But the scope of restoration varies depending on your goals and resources. You can fix the house up to 1) live in it, 2) retail it on the Multiple Listing Service (MLS), or 3) sell it for a discount to a rehabber on the wholesale market.

2. Sell it. Even though you have to take a discount, selling on the wholesale market in today's economy may be your best bet. That means minimal restoration costs because the wholesaler will buy your house, "as is." Bear in mind the disadvantages and costs associated with the traditional retail approach using the MLS.

* Current "buyers' market" means 5-12 months time to close is typical
* Potential depreciation cost depending on your market
* There are costs in many retail transactions that are easy to overlook:

6% realtor commission
2-5% closing costs
7% fix-up required for listing (conservative)
5% normal discount to sweeten the pot
15% capital gains tax

35-38% TOTAL to sell

3. Exchange it. If you've decided to sell this old house, what is your exit strategy. The best strategy for some may be simply to trade-in your old house for a much more desirable piece of real estate.

It is possible to locate a high appreciating, rental property to roll over into a 1031 exchange that will eliminate the capital gains cost. This makes the wholesale transaction the best approach by far. You get the cash you need now and end up with a better property situation.

The 1031 Exchange will usually save you 15% capital gains tax, but you need a professional to help you with all of the intricate IRS rules. You must specify the property you are going to acquire very early in the process. Moreover, you must complete the transaction within 180 days.

But it's worth it. A little extra planning and effort can relieve you from a burdensome "albatross" and start you on the path to financial freedom.