Sell and walk away, or 1031?

3 Replies

Hello BP people

I find myself at on the fence, I have a owner occupied triplex in Venice CA I have owned this since 1995 the property has appreciated a lot looking at about a sale of 2.2 million 

My problem is that I can't get a REFI based on my debt to loan, it's 80% even though my income on the property supports the new loan the bank is looking at my personal income only, I have tried for 3 years to try and get my first and second combined $720k I also have a large CC debt on the side. I'm so fed up with the banks, I have never missed a payment and the same goes for my credit score perfect but for the total debt I have out is very high, so even with 1.3 plus in equity I'm stuck. My rents are $5,700 a month very solid, If I moved into my smallest unit of the three I could bring my rental income up to $7,100 a month I guess this is an option, or I could just sell this summer? The capital gains are huge so I was thinking of a 1031, but after being a live on site landlord I'm pretty much over that. I'm going to fix up my unit now, as it's the only one of the three that needs a little paint and TLC ( The other two are really nice ) and if I can't find a way to consolidate the two loans I think I will list the property! I might end up with $730k after cap gains if I just walk away.

So very fed up with the banks.

Bob V

Venice CA

@Bob Berry

You've actually got a combo opportunity - take the portion you have lived in as a sec 121 exemption and 1031 the rest.  You will be able to exempt 250K in profit (500K if you're married) and the remainder will go into new investment real estate in the 1031.  This way you can use the cash to get a new primary residence away from your rentals.  And use the 1031 to buy another good cash flow property away from where you live that is less than the one you have now which will help the debt/income ratios.

Another option would be to do exactly what you propose - move into another of the units.  After two years then you would be able to exempt this portion as well up to the limits of 250/500K. Be aware that the look back for the two year residence period is 5 years.  So you will have to document that you lived in each for two of the last 5 years before the sale.

Hi Bob,

If you want hands off go commercial NNN.

Look at  a non-recourse loan. Lenders underwrite the property more than the borrower which is different from local and regional banks. 

1031 your proceeds.

I have other clients in California doing the same thing. Selling out the property and doing a 1031. We are going after retail strip centers.  

Dave and Joel, thank you for those ideas, I would ideally like to remain here in Venice CA (LA) while my mother and father are still alive, I guess the best thing that could happen would be to REFI and get the loans consolidated

1st 470k 5.875% fixed 30 11 years in already

2nd 250k 3.40% Adjustable till 2017 then principal as well!

80k CC business cards (ouch!)

Trying to get a loan has been a nightmare, the banks don't care about 1.3 million in equity, it's my deductions off my returns and where my personal income fall then.

I get 68,400k in rents

and 49k in personal income before deductions.

I paid 325k for the property 20 years ago putting 90k down

Part of me feels I should try and hold on to the property as it's been such a great investment ( I have lived in every unit and my mother had the rear cottage for 6 years)

and another part of me is so fed up with the banks knowing I can make the new loan payments easily, and would never default having so much equity! Hell they got bailed out..

I thought about putting the sale of the property into Seattle or Portland but that was doing a straight sale paying the capital gains, and just buying a single family residence with part of the proceeds and long term bonds with the remainder? The thought of doing a 1031 and rolling everything into another property also might work I just didn't want to get into a 1.2 million dollar property tax bracket? So it looks like if I just sell and walk away I would end up with about $720k and if I went the 1031 I would have to roll all the money left about $1.2 million into the new property ( I would have zero dollars until the closing, then have to take out a line of equity) This would put me back to renting here in LA along with still paying for my mothers living cost's, granted I would have the income off the investment property maybe 4 to 5k a month? I wish I had a mind for business.

Bob B

Venice CA