Enlighten me on the best way to go about investing 200k+ in cash

[Alison Lee]

I have been renting a house out that is 180 miles from where I live. We used to live in the house but moved out 2 years ago. We've rented it out for the past two years but have decided to sell it and buy properties closer to where we now live.

I'm expecting to clear around 200-220k on the sale. The area of rural Western Kentucky in which i live has opportunities where rental style houses sell for 50k if you know where to look. We were considering trying to buy 3-4 of these types of properties using cash money from the above sale. I can probably strong arm my way into these situations and buy these places for 40k with a cash offer. 

My other thought was to build a nice duplex or triplex. Is it more expensive to build new than buy existing? Is my idea sound? Should i borrow money instead of paying cash?? How would you handle 220k?

[Raphael Collazo]

If I were you, I'd strongly consider the option of executing a 1031 exchange. If you sell the property outright, you'll be subject to a long-term capital gains tax rate which at the time of this writing is 15% (a.k.a $30,000+). Along with that, you also have to consider depreciation recapture on the sale of your property. Since you're required to claim depreciation on your property each year that you owned it, the dollar difference between the depreciated basis of the home and your sales price will be subject to this tax. With a 1031 exchange, you can take your sales proceeds and invest them in "like-kind" property. In your case, that could mean purchasing an apartment building, commercial complex or purchasing multiple properties (usually up to 3). There are strict rules you have to follow in order to make your 1031 exchange valid so I would encourage you to speak with a professional who has a lot of experience helping investors execute these transactions. Hopefully, that helps and let me know who it all goes!

All the best,