I am a new investor and would love some input or advice on my next steps. Here is my current status:
I currently have mortgages on two properties in the Houston area (both in my personal name not my LLC). One is my current residence and one is a rental I bought. Both are valued between $160-$170k and I owe $135k on my residence and $113k on the rental. The rental has tenants and is cash flowing but nothing huge. I recently purchased a third property in WA under my LLC cash which I want to sell. I believe I will walk away with $150k-$200k for the sale of that. (I am selling because itnis a high maintenance and due to distance becoming a money pit). I am trying to find the best thing to do with the profits. So far I have come up with:
1. Take the profits from the WA sale and put into a 1031. Use the 1031 and the LLC to purchase my rental property outright. I will likely have some boot left over to pay taxes on. They use that and the rental income to pay my personal mortgage down to $0. Once both properties are free and clear buy a third and use all the income (my wife and I will still pay our regular mortgage amount) from all properties to pay down the third and so on.
2. Use the funds from the WA house to purchase more properties with mortgages.
I am 28 years old so time is on my side. I will be working my normal job for the foreseeable future as well. I feel like I am in a good spot but unsure of the best path or strategy to use from here. What would you do? Any tips, advice would be appreciated so I can capitalize on my hard work thus far.
@David O'Larey , if time is on your side then why not structure so you get to do both. - Leverage and save on taxes.
I think your idea of buying one property for cash is splendid. This gives you the ultimate flexibility to refi and expand down the road. It also puts you in a very strong defensive investing position right now in a rapidly maturing market. A house owned for cash may under produce but it will almost never non-produce.
But in order to completely avoid taxes on the boot in your 1031 why not purchase a second property as part of the 1031 using leverage. Doing this keeps you somewhat aggressive and let's you take advantage of CoC returns that blend higher. And it saves you having to take boot and pay taxes.
The 1031 does not have to be one for one. You can sell one and buy more than one. And you can allocate your proceeds in any way you choose.
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