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1031 Exchanges

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Brian Jacobson
  • Investor
  • Portland, OR
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How to know when to sell for earned equity

Brian Jacobson
  • Investor
  • Portland, OR
Posted Jun 10 2015, 16:39

A little over 4 years ago I purchased my first property: a 3-flat in Chicago for $305,000.  In Logan Square - now one of the hottest real estate areas in the city in terms of %increase in value and %increase in home sales YoY. 

The idea was simple - rehab all of the units, live in one, rent others to friends, find property manager when friends leave, hold for retirement.  I estimate that I put about $80,000 of my own money into the building over the course of 3 years.  Everything has been replaced other than the roof and one refrigerator.  

Fast forward to today, and I have a little over a $200,000 principle balance on the building, with 11 years left on the 15-yr mortgage.  And an estimated value between $650,000-700,000.

With the $900/mo gross income ballooning to a little over $2,600 when the mortgage is paid off, I planned on making that a good half of my retirement plan.  But this post by Ben got me thinking - which I believe is always his intended purpose. http://www.biggerpockets.com/renewsblog/2015/06/09...

At first read, it seemed ridiculous.  Of course buy and hold works.  It's working beautifully for me.  But the value of my cash flow to available equity doesn't appear to be as high as I could obtain by cashing out my supposed $400,000+ in equity and purchasing two larger buildings, thus generating more cash flow now than I was planning on getting after my mortgage is paid off in 11 years.  And using a 1031 exchange, I wouldn't have to pay taxes on the appreciation of the building.  

And I forgot to mention that I now live in Portland, OR where I purchased a home with a spare lot that I will develop in the very near future.  I don't need to list all the benefits of liquidating in Chicago and bringing that Equity closer to home.

So, my question to the BP community - given that this is all new to me - is what am I missing?  I got lucky with my first purchase and don't want to get greedy.  But I also don't want to leave money on the table by not putting my money to work for me in the most efficient way possible.

I realize there are a lot of factors at play here, so ask away if you'd like additional information.

Thanks all,

Brian

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