Advice investing $540k for cashflow and under the 1031 exchange..

3 Replies

I have a similar situation as @jenpothilat 's posting, both of us living in expensive cities (Im in LA) with $540k cash to invest but I have a different goal and more limitations.  My intent on this next purchase is to make rental income to support a career change into investing full-time. 30k a year in rental income PLUS continuing to work but on a part-time basis should enough for the transition. Because my current apt (soon to be listed) is a rental property I have to buy a single family, condo or a duplex for rental purposes to qualify for the 1031 exchange (to pay little to zero taxes on profit).  What kind of property should I be concentrating on?:

Would a 3 brm condo in silverlake (rent for $3200/mo) that I can sell in a year to fully re-invest $540k OR buy and hold in a 2/1ba duplex (rent for 4k/mo but 100k more in asking) in hyde park, a slow but up-coming area but will hopefully appreciate soon-ish.  While these rental numbers sound high, my actual profit will be 50% once all expenses and cap x is accounted for and they both dont hit the 30k/year to transition off. I could put the minimum down OR put more $ down (50%) to get my rental income higher and apply for a Heloc loan to re-invest later?

@Kiku Yamaguchi might want to think about buying a tri plex and quadplex with double of more then double of available 540K that you have to invest

Assuming you buy a quadplex to live in one unit and rent the rest for 1.6 mil (400K each unit)

1) You will buy 1 unit for your personal use for 400K . Take loan

2) You will buy 3 units using 1031 funds and loan 

3) Buying a larger unit will help you leverage which will in turn increase rental income 

4) You get live in one unit and tax/interest portion is a write off and when you sell gain is tax free upto 250K 

Your accountant should be able to split this type of transaction.  Best of luck 

@Kiku Yamaguchi, I think that you're saying that the apt you are selling now is a rental and you want to 1031 into something that will get you closer to the $30K annual number you want in order to be able to scale back your work life.

If that's the case you don't have to reinvest into any particular type of real estate in order to benefit from the 1031.  And tenant rental itself isn't a requirement either although you do want something that's going to generate the revenue you need.  So the properties you list as well as those mentioned by @Shahriar Khan would all work just fine for your 1031.   $30K net on a $540K investment is still very doable in many sectors.  With the 1031 you could explore into commercial as well as residential.  It actually gives you flexibility to chase the return you want.

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