Ready....Set.....Wait, what do I do next?

Question

Hello Everyone and Everything Bigger Pockets!!

I have been listening and attending webinars for over a year now. I am an investment property owner in Ripon, Ca. I have owned the house for 4 years in July and have just started cash flowing in October of 2016. I have just received a call informing me of the tenants wanting to buy. If I don't sell they are looking elsewhere. The inventory is extremley low in Ripon. I have listened to the podcast and imagined what I would do if this situation actually came up. Now it's here. These are the basics- can anyone offer some guidance?

Thanks

Sean

Sean Mamola · Answer

@Jay Helms

Thank you for the direction. I have spent the last 2 hours researching and bending my brain to think of what my investment strategy is. Ultimately- I would like to sell the property and buy a duplex. To be honest, "investment strategy" is something I have no taken time to formulate, ( I've spent the last hour investigating exit and investment strategy on BP ).

As far as the exit criteria~ it fits all of it. Selling to take next step and buy bigger, house has equity to make this happen.

I am intending to 1031 exchange this process with the sale contingent on me finding a like property of equal or greater value.

More on strategy?

Thank you!!!!

Sean Mamola · Answer

@Chris Mason

Thank you for the "OMG" price breakdown. Agent ran some comps for the area, not impressed at the moment with them. However, I think we have an OMG price.

Thank You!!!

Sean Mamola · Answer

@Dave

@Dave Foster Hi Dave! Happy New Year!  Thank you for that bit of advice. I feel as if that is something I can definately lend myself to. Just making sure that this deal goes in the direction of growing bigger, slow and steady. We might have to have another phone conversation when the deal comes closer.

@Anthony Dooley- great advice- jotting it down in my notes and making sure I start looking and familiarizing myself with the trends as far as appreciation with duplexes are concerned. Once again- continually honing the vision and going back to the drawing board to make it work. Thank you!

Any suggestions on good real estate books to read after I come home from work? Something very beginner- I just finished RDPD. (Rich dad poor dad)

Sean

Anthony Dooley · Answer

@Sean Mamola You said inventory is low, which is great for you as a seller.  When looking for another property, and inventory is low, you will have to pay more.  You may need to look outside of you town.  Look for fannie mae foreclosures or property that you can rehab in order to maximize your buying power and get the most cash flow.  I wouldn't buy a duplex if I were you.  They will be much harder to sell later and they don't appreciate like an SFR.  I'm sure some readers will disagree, but that doesn't mean they know what they are talking about.  Good luck with it.

Dave Foster · Answer

@Sean Mamola, Throw out the blue print idea.  Blue prints work just fine in an environment rich with malleable, duplicable raw material.  But in a maturing market building a replicable blue print where there is little duplicable inventory is difficult to do.  Heck, there's folks building models/blueprints all over the map right about now - all the way from hold pat, to sell all and everything in between. Instead, in a market like this make each deal stand on its own.  Just make sure it takes you the next step forward, wherever that may be.

Nice job on the 1031 contingency.  You've got all the cards at this point.  Step one was the OMG offer.  Step 2 was the contingency freeing you to pursue several courses of action. Take each step as it comes.  Your 1031 will happen because it works for you.  Or it won't because thats what works for you.

The next step - look around and see what you could buy right?

Sean Mamola · Answer

Thanks @Chris Mason. I would defiantly want to roll the extra into a larger down payment and ultimately purchase something that requires a bigger down payment. That is an interesting point you make referring to the cash out refinance option six months later. This is a great component that speaks to my wanting to streamline my investing strategies and overall path.

Chris Mason · Answer

The only real trick of 1031 from a mortgage POV is that we kind of want to put all your net proceeds to work on the new property so none of it is taxed as cap gains, but on the other hand we want to minimize you coming in with additional funds. Sometimes that means there's $5k left on the table that we either put to work, or you pay cap gains on it. It's a little thing, but worth seeing if it makes more sense to just let it be taxed, buy down the rate a bit, make a larger down payment, or some combination thereof (possibly with a plan to cash out refinance six months later).

Sean Mamola · Answer

Once again thank you for all your feedback. So @Jay Helms,@Chris Mason,@Mindy Jensen,

So here is where it all stands. I am interested in 1031 exchanging the property, so I made the offer contingent on finding a like property of equal or greater value, with no time restraints. The agent said she was only going to charge me one side commission because we know each other. I asked her to send me the guidelines of the commission and a net sheet. She has not gotten back to me.

So here, is the next step of the process. What are the pro's and cons of selling a SFR piece of property that has over 100k of equity for a duplex, triplex. And now that I have the front end of the negotiations going, best pointers for sharpening my investment strategy and making sure it cohesively aligns with an exit strategy.

I hear over and over on Bigger Pockets about the over analyzation of a property- is what I'm displaying an over analyzation or am I just being very methodical an establishing a solid blueprint for future deals. Everybody has a different opinion- you should sell, you should hold,but why do you want to buy in a high market....so just need to sharpen the focus.

Any feedback is warmly welcomed.

Thank you guys!!!

Jay Helms · Answer

You are welcome @Sean Mamola.

Mindy Jensen · Answer

@Sean Mamola , just because they want to buy doesn't mean you have to sell.