Tripled my equity; time to trade up with a 1031?

Tripled my equity; time to trade up with a 1031?

Rental Property Investor · Member since 2018 · 157 posts · 83 votes

Hello Beautiful People, 

I need some advice...the house in question was my first rental property, a small class C 3/2 SFH, purchased 2 years ago for $155k with 20% down. Today similar houses on the street are selling for 220-225K. It is currently rented for $1400/mo and PITI is $840. It's a decent money maker but I think I could use the equity better if I sell and trade up. If I sold for 220, after fees and paying off the existing mortgage I would be left with @83K. Should I

A: put all the money down for 20% on a nice (class A) 400k house that would cash flow more in absolute terms but less in a CoC basis.

B: put all/most of the money down on a decent (class B) 250k starter home and have great cash flow. This is 32% down, I'm thinking this might b a good compromise of cashflow, headaches and appreciation.

C: come up with about $10k cash out of pocket to buy two 220k houses on the same block, basically doubling what I already have but my cash flow will be a little less per unit because I have a bigger mortgage. 


I think any option in the long term will be a net benefit, but I'm not sure if my thinking is straight about each choice. 

Thanks for any input. 

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  • Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    $165k (75%) cash out refi gives you about $40k. Buy another $220k class c with 20% down if you can get it ($4k out of pocket) or 25% if required ($14k out of pocket) basically plan c without selling and costing yourself $12k in closing costs. 

    Unless you think the $250k will bring $1800/mo or more and you can come up with the additional cash to refi cash out and but it. So you have one B and one C. 

  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Matt W., a 1031 will take you most of those places.  Or @Bill B.'s suggestion of a refi and buy one more is a good one also.

    The one thing that nags me is trading your interest rate to purchase a second property.  Maybe theres a way to leave your current property as is and find cash to use as a down payment on your second property.  That way you keep the lowest loan.  But also get a second property and at the front end of what looks like to be a series of rate hikes.

    The 1031 Investor5137 Reviews
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