{"id":167798,"date":"2024-02-21T15:16:26","date_gmt":"2024-02-21T22:16:26","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=167798"},"modified":"2024-02-21T15:16:28","modified_gmt":"2024-02-21T22:16:28","slug":"1031-investor-journal-two","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-two","title":{"rendered":"We\u2019re Selling Our Rental for $1 Million\u2014This Is How We\u2019ll Use the Money to Make More"},"content":{"rendered":"\n

Where to invest? This is our million-dollar (okay, $950,000) question and one of the big things we\u2019re wrestling with this month. <\/span><\/p>\n\n\n\n

If you\u2019ve been <\/span>following along<\/span><\/a>, you know that we are staring down a big <\/span>1031 exchange<\/span><\/a> in May. We\u2019re selling our Brooklyn condo, which has appreciated a ton, and looking to level up considerably. Last month, we got our sell team in order, and this month, we\u2019re starting to think about where we want to buy. <\/span><\/p>\n\n\n\n

But before we get into what\u2019s on tap for February, here\u2019s how we did on our January homework, which centered primarily around getting the sell side locked down<\/span>.<\/p>\n\n\n\n

January To-Dos<\/span><\/h2>\n\n\n\n

Hire our selling agent<\/span><\/h3>\n\n\n\n

This task was perhaps the easiest of the bunch. We reached out to our longtime agent, who has helped us find great tenants for the last 20 years. She has been patiently waiting for us to put our place on the market and has a great track record of sales in our price range in Brooklyn. <\/span><\/p>\n\n\n\n

We negotiated a 5% commission. I\u2019m fine with that\u2014this isn\u2019t where I want to make our money; instead, I want her to get this sold lickety-split so we can move on to the buy side.<\/span><\/p>\n\n\n\n

Get the condo ready<\/span><\/h3>\n\n\n\n

Our agent identified a few areas of the condo that we\u2019ll want to repair before we list. These issues are all at the \u201chandyman\u201d level, so they probably won\u2019t cost us more than $1,000 or so in total to fix.<\/span><\/p>\n\n\n\n

We\u2019ll be ready to tackle these when our tenants leave at the end of April. Our handyman was originally a referral from our real estate agent.<\/span><\/p>\n\n\n\n

Build a just-in-case slush fund<\/span><\/h3>\n\n\n\n

We know this: We don\u2019t know what we don\u2019t know. From lost rent to repair costs and beyond, we don\u2019t want to make a bad move because we can\u2019t fund a good one. When we bought our last rental in New Hampshire, the house under appraised (there were zero recent <\/span>comps<\/span><\/a> in the area), and we were suddenly on the hook for an <\/span>extra<\/span><\/em> $25,000 cash to make up the difference. Ouch.)<\/span><\/p>\n\n\n\n

We learned our lesson: We\u2019ve set aside $28,000 as a safety net to take us through this transition.<\/span><\/p>\n\n\n\n

Use a tax pro<\/span><\/h3>\n\n\n\n

Our current tax professional has a lot of real estate experience (he\u2019s an investor himself) and was easily able to walk us through all the steps of the exchange. He also referred us to a 1031 third party that he used himself in the last 12 months for his own exchange.<\/span><\/p>\n\n\n\n

Find a 1031 third party<\/span><\/h3>\n\n\n\n

Based on our tax pro\u2019s recommendation, we called a 1031 third-party company. In this type of exchange, the seller is never allowed to take possession of the money from the sale\u2014if they do, they forfeit the tax benefit. To avoid this, you hire an intermediary to keep the money in escrow while you hunt for the property you want to buy. <\/span><\/p>\n\n\n\n

They walked us through the process and shared their fees ($1,000). I took the opportunity to talk through our plan with them, asking questions like:<\/span><\/p>\n\n\n\n