Trading cash flow for appreciation

[Andrew Perkins]

Hello,

I'd like to know your thoughts on 1031 exchanging a cash flowing property (purchased 3 years ago and over 1% rule) for a better property in a nicer area. The nicer area will certainly not cash flow as well with current prices, but should have greater long term appreciation. There is also the possibility of using it as a STR to generate some extra cash flow. I know it depends on your individual strategy and goals - and we are not in need of cash flow currently, but it feels so wrong to me to look at properties with a worse return. I feel sick when I run the numbers and see a decrease in cash flow and start to doubt why I am even doing it in the first place! Any advice would be much appreciated.

[Andrew Perkins]

In my market, any of the properties that are in desirable areas are selling for amounts that don’t make sense for LTR.  For example, the home we are considering selling was bought for 95k and rents for $1025/mo.  Some of the ones we are looking at now are listed at 240k with a possible rent of $1600/mo - nowhere near a 1% rent to price ration.  In some areas, it’s still possible to get a rental close to the 1% rule, but they’re in less desirable areas. Not to mention the bidding wars in nicer areas is outrageous still.