1031 or keep raise rent

9 Replies

I'm new to bigger pockets and I've done well buying rentals by luck back in 2011-2104 when the market was down. I own a rental in Gulfport FL and owe 130K with 30 year fixed 4.5% and its worth 200-250K. Current tenant is moving and pays $1200 so I barely cash flow but I only paid 85K plus 35K initial repairs paid for by HELOC on primary. Trying to decide 1. Cash out while market is hot and pay down my HELOC which I've used for deposits to buy 5 rentals in Tampa area 2. Do a 1031 exchange to buy another property in a better area of Tampa like Oldsmar/Wesley ChapelDunedin/Palm Harbor where I can get higher rents, potentially better tenants, lower crime and/or better schools 3. Keep this house and raise rent to ~$1400 which should be doable

Any thoughts?!

Thanks,
Steve

@Steve Janiak

seems you are asking for opinions.

there's no concrete answer.

but if it were me, i would keep it (and maybe raise the rent as high as the market will bear.)

any cashflow box is a good cashflow box. if it brings you $1/ month net profit, keep it.

i'd just find others to add to it.

Yes just looking for opinions from more experienced investors. You may be right to Keep it with cash flow... It's a hot market so before it goes back down if it does anytime soon and I've used ~100K HELOC from our primary home so thought if I cashed out on 1 of 5 rentals it would pay off most HELOC. Gulfport I've found tenants tend to pay late more and put more wear n year on my house than all my tenants in Oldsmar which is why I'm considering a 1031.

The way I see it, you have about $100k, (if your value is right) that's not earning anything for you.  $1200-1400/month income on a $200-250k property is not something to hold onto.  

Have you looked into the 1031 exchange?  There are substantial fees and the time restrictions to find your next deal to exchange into.  Those rules make it a challenge to avoid buying something you wouldn't buy if you had more time. The taxes won't be due if you don't 1031 it, until April of next year.  You could do a lot of things between now and then with the full amount of your sale proceeds.  Just be sure you have the funds avaialable for whatever taxes are due.

You caught a nice swing in the market and nobody knows where the top is?  I would take those chips off the table and cash in! No tax advice here, just a few ideas.

Yes I got lucky buying back then!! I've looked at 1031 since I agree a home valued at 200-250K with $1200-1400 makes no sense if I bought it now for that price but I only paid 120K so it cash flows. yes timelines are tight for a 1031 but I've been looking and the Tampa market is harder to find those great deals now! I've considered a 1031 into new construction SFH in Tampa area for 200-250K which will pull in $1750-2000 rents but after sell/buy fees I'd probably have a larger mortgage or put in more my own cash for a low cash flow on the new home. New home probably better tenants and appreciate better.

I wouldn't touch new construction as an investor.  I think that only makes sense as a builder/investor.  Otherwise, you can't buy under value like on preexisting houses.

I have a brother who lives in Oldsmar seasonally.  He is a thoroughbred race horse trainer.  He just left and moved back up to Ohio.

I don't know what your financial picture is, but I would consult my CPA to see just what the tax hit will be on that capital gain.  It may still be worth it to pay the taxes and cash out of that property while the value is there.  Something seems abnormal for rent rates to be that low for properties at that value?

Oldsmar is nice with better rents and tenants than Gulfport! My PM thinks I might be able to get $140-1500 on the high end but I agree take some profit cash out, pay taxes and pay off my HELOC is a good move for me. My realtor is confident she can sell 220-250K and she has worked that area for years. Thanks for the advise on new construction... I agree no deals and it's definitely more speculative based on it's the first community in the USA with a really cool unique crystal lagoon in Wesley Chapel called Epperson and first phase pricing but I'll probably pass on buying there.

Thanks again!
Steve

Originally posted by @Steve Janiak :

Yes I got lucky buying back then!! I've looked at 1031 since I agree a home valued at 200-250K with $1200-1400 makes no sense if I bought it now for that price but I only paid 120K so it cash flows. yes timelines are tight for a 1031 but I've been looking and the Tampa market is harder to find those great deals now! I've considered a 1031 into new construction SFH in Tampa area for 200-250K which will pull in $1750-2000 rents but after sell/buy fees I'd probably have a larger mortgage or put in more my own cash for a low cash flow on the new home. New home probably better tenants and appreciate better.

Hi Steve, if you’re in a time crunch and an accredited investor, I might recommend you learn about DSTs (Delaware Statutory Trusts). I’ll quickly share my experience I have had no issues at all in placing my clients into replacement property within the 45-day guideline. In fact, I often have my clients closed on their replacement property within 2 weeks of their relinquished property sale. 

More on DSTs from a blog I wrote on BP,

https://www.biggerpockets.com/blogs/7993/48729-are-your-rental-properties-weighing-you-down

@Steve Janiak , You could always combine 1 and 2.  If you haven't closed on those 5 rentals you could sell Gulfport and 1031 into those 5.   When doing a 1031 you do not have to purchase 1 to 1.   If you want to defer all tax you simply must purchase at least as much as you sell and use all the cash proceeds from the sale in the purchases.

Thanks for the DST idea I'll look into it. Yes I bought all 5 rentals back in 2011-2014. Sounds like I can exchange 1 for 2 but I'd have to find 2 quickly in good areas so I'd rather exchange for 1 in a better area.

Steve

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