1031 exchange or keep the current property?

Question

Hi Everyone ,

I am currently debating if I should keep my Duplex which just cashed out refi(250k cash) this year or I should 1031 exchange to a new purchase.

Below is the scenario:

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Current Property

-Duplex Attached (1,200 sf)

-Lot Size:6,500 (R2 Zone)

-Potential sold price: $750k-820k

Gross Rent: $44,600

NOI:             $37,000

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Future Property

-Potential purchase price: $880k-940k

-Duplex Detached (2,100 sqft)

-Lot size:9,300 (R3 Zone)

Gross Rent: $55,000 (After repair rent $70,000)

NOI:             $41,000 (After repair NOI $56,000)

-ARV $1.15M-1.25M (100k-120K Repair estimated)

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Any suggestion would be helpful.

Thanks in advance.

Daniel

Dave Foster · Answer

@Daniel Huang, those are some CA numbers for sure.  I dont think there's much massaging that could happen to either of those to make cash flow work well.  But if you can be close to neutral or a little positive and hold both properties conservatively enough that you can sustain a period of stagnation if/when it happens then I'd be thinking about holding both.  Appreciation has to be your friend for that to happen though.  And make sure you've got some cash flow from somewhere else to cover a bad time.

Otherwise you'll drop a lot of debt with a 1031 into the new property. And that could smooth over any future rough patches.