Sell or Rent

[Kelvin Law]

Two family house

Purchase Price: $880,000 

Intend to sell for $1,380,000

Current information:

1 FL rent: $2600

2 FL rent $2300

Mortgage payment: about $3000/month (inc the property tax)

Utility: appx $1800/ yr

Reasons to sell:
slope down drive way, easy to get flooded, flooded during last hurricane Ida @ 2021,  bad storm/sewer drainage in the area so flood likely to happen when there are heavy rain fall (with the weather nowadays, I'm afraid crazy weather will happen more often), need to renovate 2 floor (maybe $15-20K with cosmetic work, etc)

Reasons to keep: nice location, nice neighborhood, quite and good school district, okay cash flow, 

Cons with selling, I do not live there 2 years period out of the 5 years time when sell, so I m NOT eligible to use the capital tax gain reduction (250K/person).

Question: with 1031, if I sold the property for $1380000, do I need to invest the entire 1380000 or "1380000 minus the mortgage" in order to avoid paying capital gain tax?

Looking for opinion either to sell or keep the property.

Any comment or opinion will be appreciated.

Thank you

[Nathan Grabau]

If you 1031 you have to redeploy 100% of the proceeds and keep the same amount of debt. You are allowed to do a cash out refi as soon as you are legally allowed(12 months now for conforming) to get cash out of the deal. 

Your return on equity here feels low. It is likely you could have a better return on your money if you redeployed through a 1031. Back of the envelope math says you should probably at least have 600k in equity after closing costs/ REALTOR fees, so to only be spinning off 21k a year here, without any maintenance/ vacancy/ capex/ flood costs/ risks included is a 3% cash on equity return. (before appreciation/ loan paydown).

You should be able to outperform that in a appreciation market pretty easy, and blow that out of the water(Cash on Cash) in a cash flow market. 

I am happy to run numbers on what I think you could get with that kind of investment in CO or can connect you with the reatlor/ pm I use in Ames, Iowa(where ISU is) that I cannot recommend enough. Happy to help in any other ways you think could be useful!