Hold, Sell, 1031 or Refinance?

1 Reply

Hello, 

I'm a first time poster, long time reader. I'm posting about a situation I am in with my second deal. I've been pondering the best course of action for about 6 months and thought I'd get BP's advice.

Situation:

I live in a college town and in 2012 I bought a 6 bedroom student rental for $188.5k using a 20% down, 30 year loan. The place was in foreclosure and I spent 1 year fixing it up before moving out and renting to students. I spent about $17k fixing it up. 

So I have roughly $60k into it from the downpayment and the rehab costs. The place now gets the market rate rent of $600 per bedroom per month, or $3600 per month. Against a $1600 mortgage, taxes and insurance payment it is cash flowing very well. 

In today's market the comps have been selling for around $425k. I want to grow my real estate business further (have 2 other investment properties as well), but I'm not sure the best course of action to take in terms of leveraging the large amount of equity I have in this place now. 

I'm considering 1031ing, but it be hard to find another deal cash flowing so well. I could sell, pay taxes and pay off my other two properties or pull a lot of cash out and reduce my cash flow some, but have house money to go buy another property. 

Thoughts?

Hi Dan!

First off, congrats on what sounds like an awesome first deal.

Now to address your question:  I'm not the most experienced person in the room, but I think the answer depends on what your goal is. If you are looking for cash flow, you could keep it. If you are looking to leverage your appreciation into new value plays, then you could sell/1031. Personally, I love cash flow, so if I was you I would keep it. But that is entirely up to you.

I don't think you mentioned a hybrid option though--which is likely what I would do--and that would be to keep it and get a HELOC against it to give you capital to get into more deals.

Good luck!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.