1031 or hold due to low interest rate( 3.375 / 20 year)?

1031 Exchanges
5yFollow

1031 or hold due to low interest rate( 3.375 / 20 year)?

Christian Espana
Member since 2021 · 46 posts · 29 votes

Hello BP Community,

I have a property in California with about 270K in equity, but no cash flow, just breaking even. I am considering selling and doing a 1031 to buy properties in Florida or Tennessee. 

Initially I was thinking I would buy a couple of SFH, I am not an expert, but perhaps looking into Duplexes or a house in Nashville where I could Airbnb.

Any thoughts on this strategy? Or would it be best to hold, since eventually I will cash flow and have a great rate on the loan?

Thank you in advance for your thoughts!

0Reply
36 views

Most Popular Reply

Kumar Gaurav
Member since 2019 · 258 posts · 35 votes
5y

@Christian Espana

Hello,

Have you considered tapping on its equity by refinancing or HELOC and investing in another property?

1Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Justin Summers
    Member since 2020 · 65 posts · 17 votes
    5y

    While airbnb's can make money they are a lot of work ..  Unless you are located near the property I would not recommend it. The management company and realtors will inflate the number to expect. The problem with selling in the market is finding anything to buy that makes sense. Sure you existing property has increased in value but so has every other rental property you are trying to buy.  

    0Reply
  • Justin Hoggatt
    Investor · Morrison, CO · Member since 2015 · 221 posts · 177 votes
    5y

    @Christian Espana , I think you have the right idea in selling.  Of course, try and have a good game plan on what you want to do.  I don't have experience in the AirBnB world and I think it's possible you can have great success with it whether you live close to it or not.

    I think having that much equity that isn't doing anything for you, unless appreciation is still going crazy, would be wise putting it to good use. Of course there are many ways including teaming up with others.  Having the game plan ready before selling helps ease the stress on what to designate on if you have the clock ticking.

    Also, I'm curious if you've had the property for awhile and was it your primary residence for awhile?  How long have you had it?  These are considerations when looking at taxes and/or a 1031.  If you used it as a primary recently, then you may not be required to do a 1031.  Just some items to think about if you haven't already.

    Another note, if the tenant isn't still tied to a long term lease, it *could* be more favorable to a buyer and you may end up with a higher sales price.

    0Reply
  • Christian Espana
    OP
    Member since 2021 · 46 posts · 29 votes
    5y

    @Justin Summers I live in California and my concern with Airbnb would be time.  Selling in California and buying outside however gives me more buying power.  Thanks for the feedback! 

    0Reply
  • Christian Espana
    OP
    Member since 2021 · 46 posts · 29 votes
    5y

    @Justin Hoggatt I lived in the property from 06 to 13 and has been a rental since 2013.  The lease expired a few years back and my tenants are now month to month.  I was just going to give them notice to vacate so I could sell without having to worry about tenants.   I don’t expect the market to appreciate heavily but you never know here in Sonoma county.   I will probably need exterior paint and roof in the next 6 years so also considering those costs in deciding to hold or not.  Airbnb shows potential of 8.4K/month for this property but no idea what my actual cash flow would be.   Thanks for your feedback! 

    0Reply
  • Justin Summers
    Member since 2020 · 65 posts · 17 votes
    5y

    Something else to point out.. Make sure to check with the local zoning office to make sure that short term renting is legal.. Many realtors will tell you oh.. everyone does it.  Make sure it's legal or else the city decides to crack down on the illegal short term rentals you will be screwed.. Miami Beach did this and started fining people $20,000 for the first offense of renting short term and $40,000 for the 2nd offensive.  some owner's got hundreds of thousands in code fines. 

    0Reply
  • Kumar Gaurav
    Member since 2019 · 258 posts · 35 votes
    5y

    @Christian Espana

    Hello,

    Have you considered tapping on its equity by refinancing or HELOC and investing in another property?

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Christian Espana, If you have no cash flow then. you probably are not able to take advantage of depreciation write off as well.  So that is building up without you having the opportunity to truly use it.  Keeping a neutral asset for probable appreciation is not a bad thing.  But just remember that making a 0% return for 10 years and a 10% return for 10 years is still just a 5% return for that entire time.  Appreciation should be the icing on the cake.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
  • Kumar Gaurav
    Member since 2019 · 258 posts · 35 votes
    5y
    Originally posted by @Dave Foster:

    @Christian Espana, If you have no cash flow then. you probably are not able to take advantage of depreciation write off as well.  So that is building up without you having the opportunity to truly use it.  Keeping a neutral asset for probable appreciation is not a bad thing.  But just remember that making a 0% return for 10 years and a 10% return for 10 years is still just a 5% return for that entire time.  Appreciation should be the icing on the cake.

    Great Point Dave, I did not think about depreciation. If I understand it correctly when there is no cash flow or negative cash flow, it probably makes sense to sell as there will be tax benefit on the Capital gains vs Cash flowing property?

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Kumar Gaurav, Yes sort of.  Depreciation is incredibly invaluable to offset positive cash flow making ordinary income tax free ( well at least until you sell).  A property that is not making cash flow is wasting the depreciation benefit because of it's limitations.  So we see a lot of 1031 investors exchanging into properties that have greater depreciable basis so they can really capture the full value of depreciation.

    Capital gains and depreciation both can be deferred in a 1031.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Christian Espana
    OP
    Member since 2021 · 46 posts · 29 votes
    5y

    @Dave Foster great point and one I didn't really think about. I'm pretty sure I want to move forward with a 1031 exchange and purchase a NOO STR in Nashville or possible multiple SFR in Cape Coral. Are you by chance able to help with the 1031 or could recommend someone. I live in California. Let me know and I can PM you to discuss further. Thank you for the info!

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Christian Espana, I sent a colleague request to you.  You can also PM.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Christian Espana

    Sell everything you own in California and move to TX or TN. 

    That's what the smart money is doing. 

    0Reply
  • Christian Espana
    OP
    Member since 2021 · 46 posts · 29 votes
    5y

    @Luka Milicevic I am selling the investment property in California and buying in Nashville.  I purchased my primary residence after the last bubble in a great area so if I ever decide to rent, it will cash flow quite heavily.  Where in TX would you consider?  

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free