Seeking help looking at pros and cons for my first real investmen

3 Replies

Hello all looking for different perspectives.I have a single family home I rent out. The rental income covers maintenance, property management and mortgage payments with a little extra. The equity I have built up gives me a option to refinance and get some cash I intend to use towards another rental property .

However the mortgage payment would increase meaning that property would break even.
My other option would simply sell that property and potentially have enough to support the purchase 2 properties with better cash flow. Thank you

Hey Justin,

Any chance you can sell and 1031 exchange up to a multifamily property? As you said, refinancing will only reset your mortgage balance and increase your monthly payment there. If you are confident the single family will appreciate, maybe you can hold on. But, that's hard to assume. 

I say sell and scale up to bigger things!

Good luck.

@Justin Webb as @Brandon Rush correctly points out, one option is to sell your single family home and use the proceeds to 1031 exchange into better-suited asset(s).  There are lots of potential replacement property options inside of a 1031 -- including multifamily, commercial, land, oil & gas rights, etc. 

This especially makes sense if you find a property (or two properties...or three) that offer better margins than your current one. You effectively get to restructure and spread your equity to make it more efficient and productive. 

Keep in mind the basic 1031 rules:

  • Must complete within 180 calendar days of the sale of your relinquished property
  • Must identify (up to 3) replacement properties within 45 days
  • Only complete tax deferral if the final value of the replacement property(ies)equal at least as much as your net sale price for the relinquished property.
  • If you trade down in value, the difference is taxable
  • Keep the same taxpayer across properties
  • You can exchange into (and out of) any state and many US territories
  • There are lots of different assets that qualify as valid replacement targets in a 1031, so think broadly