Cash-out Refi, then 1031 Exchange

[Eric C.]

My investment condo has been in litigation against the builder for construction defects for almost 4 years and finally settled last month. I'm wondering if I will have problem doing a cash out refi now (LTV is <45%) since I plan to do a 1031 exchange next year . I just purchased an out of state rental this month and want to extract the down payment from this investment condo.

I'll put it on market in March 2017 and do a 1031 exchange with 2 out of state properties.  

[Bill Exeter]

Hi @Eric C.,

I would put the condo on the market, sell and complete a 1031 Exchange.  This way you will not burn any bridges with a lender (they want long term loans), you will not have any closing costs, and you can acquire your two (2) replacement properties.  You can then wait a few months and do cash out refinance loans on the two (2) new replacement properties.  Everyone wins and is happy, and you will not have the multiple financing costs before and after your 1031 Exchange.  It is actually safer from a taxable boot perspective is you do the cash out refinance after the 1031 Exchange as opposed to before it.