Time to sell?

Featured
General Real Estate Investing
2yFollow

Time to sell?

Jonah SlovePro Member
Member since 2023 · 77 posts · 53 votes

My fiancé owes a small 2bed 2bath townhouse outright. It was her primary with a roommate until she moved in with me, now it is rented fully. It is valued at $1.3mil and she bought for $550k 5 years ago so not a bad return at all. Currently she only rents it for $2500mo because affordable housing is an issue in our small town..also STR is not allowed per the town. Now we are considering selling it to buy a more cash flowing property. Maybe some MFR in a bigger town an hour away. We would 1031. Pros and cons to this idea?

16Reply
208 views

Most Popular Reply

Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
2y

@Jonah Slove, She will be the only person eligible for the primary residence deduction.  In order for you to qualify you would have had to have lived in it also for 2 out of the 5 years prior to sale.  Marriage ultimately doesn't really have that much to do with the qualifying other than establishing residency and what tax return the property is reported on.  It is your use.

But....  there is a great opportunity here.  She will only get $250K of profit tax-free.  But because it is also an investment property right now she can also 1031 the remainder.  

 $250K tax-free.  and defer the rest of the tax in a 1031 exchange.  

The 1031 Investor5137 Reviews
WebsiteView Page
23Reply
See this reply in the discussion

95 Replies

Jump to latestLatest
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    2y

    @Jonah Slove tell her to look into capital gains taxes and how much she can exclude if she lived in it for 2 out of the past 5 years.  Renting a $1.3million home is a terrible return.  She can certainly do better with other properties. 

    13Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Andrew Postell:

    @Jonah Slove tell her to look into capital gains taxes and how much she can exclude if she lived in it for 2 out of the past 5 years.

    Okay, but either way it comes down to selling right? If we wanted to reinvest the proceeds from the sale would a 1031 be different than tax free capital gains?

    2Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Andrew Postell:

    @Jonah Slove tell her to look into capital gains taxes and how much she can exclude if she lived in it for 2 out of the past 5 years.  Renting a $1.3million home is a terrible return.  She can certainly do better with other properties. 


     We can exclude $500k of gains if we are married. Once fees and improvements are taken off too we should be maximizing that. So what are your thoughts on our scenario? She moved in with me 2 years ago and before the property in question was her primary.

    0Reply
  • Jim Butterfield
    Rental Property Investor · Cornelius, OR · Member since 2016 · 58 posts · 26 votes
    2y

    yes great idea. we had same situation, she bought house long before me. after a while, she was not able to make anymore money on the home in rent. Cashflow was only $200mo.  Had lots of equity. Sold it 1031 into 3 homes (out of state) and now cash flowing $800 from the 3. 

    7Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    2y

    For sure need to sell and 1031 the proceeds into something else.

    Spend some time dialing in where you want to park the money before you even list the townhouse for sale. The identification window on those 1031 exchanges goes by QUICK.

    5Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Scott E.:

    For sure need to sell and 1031 the proceeds into something else.

    Spend some time dialing in where you want to park the money before you even list the townhouse for sale. The identification window on those 1031 exchanges goes by QUICK.


    ok good to know. It sounds like we can also sell pretty much tax free from cap gains too as it was recently her primary. We live in a small town and rural area (Jackson, WY) so not sure where to look next.. multi family an hour away? a few SFH in another city? How should we start looking. I am also personally looking to buy in a city like Detroit to learn the process.

    1Reply
  • Jonathan Bock
    Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
    2y

    Jonah 

    Section 121 exclusion is a little more complicated its a great incentive can you give us some more color and dates that would help with analysis.  You probably already know but 121 is bracketed 250k/500k for the capital gains exclusion.  

    Jon Bock, CPA   

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Jonah Slove, She will be the only person eligible for the primary residence deduction.  In order for you to qualify you would have had to have lived in it also for 2 out of the 5 years prior to sale.  Marriage ultimately doesn't really have that much to do with the qualifying other than establishing residency and what tax return the property is reported on.  It is your use.

    But....  there is a great opportunity here.  She will only get $250K of profit tax-free.  But because it is also an investment property right now she can also 1031 the remainder.  

     $250K tax-free.  and defer the rest of the tax in a 1031 exchange.  

    The 1031 Investor5137 Reviews
    WebsiteView Page
    23Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Dave Foster:

    @Jonah Slove, She will be the only person eligible for the primary residence deduction.  In order for you to qualify you would have had to have lived in it also for 2 out of the 5 years prior to sale.  Marriage ultimately doesn't really have that much to do with the qualifying other than establishing residency and what tax return the property is reported on.  It is your use.

    But....  there is a great opportunity here.  She will only get $250K of profit tax-free.  But because it is also an investment property right now she can also 1031 the remainder.  

     $250K tax-free.  and defer the rest of the tax in a 1031 exchange.  


     Good to know, thanks for the clarification.

    Now to figure out where to buy next...

    0Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    2y

    Wow that's awesome. Normally I'd say keep but with the equity and rent you can sell. If you do make sure to reinvest into a good deal(s) and have enough for some taxes. 

    0Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Caleb Brown:

    Wow that's awesome. Normally I'd say keep but with the equity and rent you can sell. If you do make sure to reinvest into a good deal(s) and have enough for some taxes. 


     Yup  looking for those good deal(s) now

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    1031x only DEFERS capital gains, while selling it within 3 years of last occupying it for 2 years, makes wither $250k or $500k TAX FREE.

    Logical Property Management4.9446 Reviews
    WebsiteView Page
    2Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Michael Smythe:

    1031x only DEFERS capital gains, while selling it within 3 years of last occupying it for 2 years, makes wither $250k or $500k TAX FREE.

    Ah ok. So I need to figure out how to claim it as my primary too :)

    0Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    2y

    Never time to sell :)

    2Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    2y

    HOLD HOLD HOLD. Your kids and grandkids will appreciate it.

    1Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Bud Gaffney:

    HOLD HOLD HOLD. Your kids and grandkids will appreciate it.


     more so than a bunch of other properties?

    2Reply
  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    2y
    Quote from @Jonah Slove:
    Good God, man, you are just starting out and you want to be a long-distance investor in a place where even experienced real estate investors get wiped out?

    No. Start out local, get experience, THEN go remote in an area relatively near you that is landlord friendly. Build up from there. Places like Detroit, Chicago, and such, should be avoided by small-scale amateurs and dabblers who don’t live there and know the area (and the laws and courts) intimately.

    10Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    2y

    sell is always good. less headache.

    2Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    2y
    Quote from @Jonah Slove:
    Quote from @Bud Gaffney:

    HOLD HOLD HOLD. Your kids and grandkids will appreciate it.


     more so than a bunch of other properties?


     Yes! Borrow against or save up for down payment $. Don't sell !

    4Reply
  • Judy Parker
    Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes
    2y

    IMHO she should not sell the townhouse.  And a pre-nup might be in order.

    13Reply
  • Jonah SlovePro Member
    OP
    Member since 2023 · 77 posts · 53 votes
    2y
    Quote from @Judy Parker:

    IMHO she should not sell the townhouse.


     why is that? again the idea would be to reinvest in other rental markets?

    1Reply
  • Christie Gahan
    Investor · Hillsboro, OR · Member since 2016 · 304 posts · 153 votes
    2y
    Quote from @Judy Parker:

    IMHO she should not sell the townhouse.  And a pre-nup might be in order.

     I wish she was the one posting!  She needs a lawyer to walk her thru different scenarios.  If she is in a community property state half of that equity goes to him if they break up.  If this gal were my sister, I would say go to the lawyer and do what ever paper work to keep that money / property seperate.   If they break up, she is covered. If they stay together, he still benefits.  

     I would encourage her to have a balanced portfolio.  I would never want all of my net worth in one property or investment.

    7Reply
  • Emmanuel Johnson
    Member since 2023 · 12 posts · 9 votes
    2y

    Interesting, what if you use equity to buy more and start building a rental portfolio?

    0Reply
  • Jevon Greenidge
    Member since 2023 · 3 posts · 2 votes
    2y

    thanks for all the tips in this forum. I have a similar situation 

    1Reply
  • Ben Biggs
    Real Estate Agent · San Diego, CA · Member since 2014 · 121 posts · 111 votes
    2y

    @Jonah Slove Have you guys considered taking it up to market rent? If she owns it outright, then that will just go straight to your bottom line, since you want more cashflow. If you want to sell it then the new owner will likely take it to market rent or just evict current tenants. A 1031 could be a decent alternative. Make sure you use a good intermediary. I have used several here in SD. Make sure wherever you 1031 to will be able to provide a good rental pool, you want people who can support higher rents. It's a catch-22, higher rent areas = higher price point. But there are deals to be had. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free