Hold or Sell/1031 Multi-Unit

[Carlos Oliva]

I have a duplex in Ohio where the tenants pay $1500/mo; I pay mortgage & utilities, about $800/mo. So, cashflow is about $700/mo. 

HOWEVER, there are always issues. Tenants are always a few weeks late paying. There are frequent pest issues & repairs that come up. The current urgent issue is the porch columns need to be adjusted - about $2k. The roof can last another year or so but then will cost about $20k to replace. And the exterior could use a paint job & window replacements.

I bought the property 18 mo's ago for $90k. The loan balance is $60k. It's currently valued at about $95-$100k.

Should I sell the property & 1031 into another "nicer" multi-unit in a better neighborhood that will certainly cost more & likely not cashflow as well? Or should I just hold & continue making major repairs/dealing with headache tenants?

[Bill B.]

If there’s anyone dumber enough to buy a $90k property that needs a $20k roof in a year or two, let them have it. You don’t need to do a 1031 because you’re going to lose money on the sale. 

You sell for $95k, pay realtors, fees, closing costs, etc etc, you might walk with $85-$90k? You paid $90k, so no taxes owed. You will owe one year’s depreciation recapture but that should be a 25% tax on 3.6% of the building value, less than $900. 

List it for sale tomorrow. Even if you think it will magically be worth $120k after the $20k roof, that just makes it an even worse return on your money. Talk to your realtor and the realtor who last sold any similar buildings in the neighborhood. Check the county assessor’s website for owners of similar buildings and reach out to any recent buyers or owners of multiple units.