What would be the pros and cons?

Question

Hi

I am an accidental landlord of one property outside of my primary residence. The market here is still high and I could sell with a great return, but the rent that we can get is very high so not sure selling is the smart option. There is plenty of equity in the property. My question is if I wanted to buy more properties for LTR would it be best to leverage the equity or sell with a 1031 exchange?
Two points, my credit score is high, I have assets and liquidity, so qualifying for lending should not be an issue.
Appreciate any input.
Allison

Nesha Renucci · Answer

If you are interested in continuing to be a landlord then it would be a good idea to keep the current property that you landlord and utilize a Long Term Rental loan to purchase your next property for your portfolio. With this method you would have a total of 3 properties your (primary, accidental property, and new investment property).

If you are interested in getting rid of the accidental property doing the 1031 exchange tax wise would be more beneficial to do than just selling the accidental home and not using the funds to purchase a home of equal or greater value.

David M. · Answer

@Allison Levine

Depends on your strategy and goals.  Do you want to be a landlord?  how are you doing being a landlord?  Obviously, if its stressful, unnerving, whatever, then sell.

This doesn't seem to be your investing strategy so you don't have to scale up.  You should note that people do lose money investing in real estate.  Its not always all roses...

How long have you been renting this property?  What is bequeathed to you?  I ask because sometimes the tax liability isn't always that bad.

I generally consider it better to sell/1031 to scale up instead of cashout refi.  In the latter you are paying for your own money.

My post here:  https://www.biggerpockets.com/forums/48/topics/1169308-equity-rich-need-advice?highlight_post=6659747&page=1#p6659747 kinda shows that and gives you a real life example where its cheaper to sell than refi.

Hope this helps.  Happy to chat.  Good luck.

Dave Foster · Answer

@Allison Levine, There's some calculating that can be done to get you the best answer you can.  But from what you're saying my only question would be about the interest rate you're paying now.

Your current property is a good rental.  And if it also has a low interest rate then I'd keep that ting.

Use your credit and liquidity to purchase a new property.  I wouldn't mess with a good loan on the one you have.

If the existing loan is a high rate I'd think about refinancing.  Or if the rental wasn't great I'd think about 1031 exchanging.