Cash out refi or 1031

[Kevin Younger Jr.]

Hi Everyone,

I am new to Bigger Pockets and just beginning my research into REI. I'm looking into options to fund my first "wise" investment property. My wife and I own a house in Idaho that we are currently renting out. We bought it in 2012 and recently moved to Virginia for work. We kept the house primarily because I wanted to start owning rentals. At the time I did not have the proper tools or education and now I wish I would have made some different choices. We refinanced the house a few years ago to a 15 year. The house now has negative cash flow according to the figures used on BP for rentals (about $150 per month) The rent does cover mortgage, insurance, taxes, HOA and PM. There's approximately $85,000 in equity in the house. The options I'm considering are a cash out refi again but back to a 30 year. Running those numbers if I take 30k out I'm looking around only $50 cash flow but I could fund a new property soon. Or I could wait until the current lease is up, continue to educate myself, save some more from personal income, and do a 1031 this summer. The time limits on a 1031 make me a little nervous since only properties outside of the area I live really make sense to buy. Looking for thoughts and advice. Also looking for insight into starting an LLC. The mortgage company for my Idaho house informed that they would transfer as long as I had a real estate attorney do the paperwork.

Thanks,

Jay Younger

[Dave Foster]

@Kevin Younger Jr., Selling the house with or without a 1031 seems like the best play.  With a return that sub par even paying a lot of tax would free up cash to get a real return from.  

But that being said it costs you very little to start a 1031 and if you can't find what you want you let it die and pay the tax.  There is no penalty for starting and not finishing a 1031 exchange.

So it looks like options are

1. Continue to do the blood from a turnip thing with the current rental understanding that in addition to paying less to principle and more to interest, you're also going to be paying refi costs in that new mortgage.

2. Sell the property and simply pay the tax and start over.

3. Sell the property and start a 1031 but don't finish it.  Eat the cost of the 1031 (minus the tax deduction) and start over.  Puts maybe $400 - $500 in net risk.

4. Sell the property and start a 1031 and find a property and finish the 1031.