To Exchange or Not To Exchange, that is the question?

4 Replies

I am a current investor in short-term rentals (STR's) in Arizona, with (4) properties that have performed very well. For personal and "other" reasons, we no longer want to manage STR's, and long term rental returns are not favorable. My pro-forma shows a 7% tax burden of the gross proceeds. While a 1031x is a viable option, and based upon this % of gross, what would you do?

Thanks in advance for you input and stay safe and healthy!


@Michael Greenberg while this sounds more of a question for your CPA, I can certainly help if you decide to pursue “mailbox money” and do an exchange. Best of luck to you and have a great weekend ahead!

Maybe consider doing 1031 into commercial property. 

Or even 1031 into another LTR investment that you could eventually move into as your primary residence. Then, once you move in to is as your primary, I wonder if that could eventually eliminate the deferred taxes associated with 1031?????

@Michael Greenberg , the viability of the 1031 depends as much on your current and desired return as it does on the gross tax amount.  If you can avoid paying 7% of your gross proceeds in tax then that's certainly a big win.  But you want to be able to do that at a return that, when coupled with the tax savings) equals or exceeds your current return and reduces your work load.  

You could very well be a good candidate for a move into commercial, NNN, or fractional products that are all 1031 compliant

@Michael Greenberg

Well, if managing STRs isn't your cup of tea, you probably aren't going to want to manage other types of property either.

Although, it's much easier to find a property manager for SFR LTRs (but you don't like the returns), and perhaps Multifamily may offer you something more appealing in the way of returns and ability to let someone else do the managing.

Another potential option if you want a true hands off experience is a single tenant triple net lease (like owning the building a Burger King is leasing). But you may need some additional cash for that depending on the equity in the STRs you have. 

You'll have to find a mix of returns and ease-of-management that works for you, as the two usually don't go hand in hand. 

Are you going to stay in the Phoenix area or look somewhere out of state or closer to home?