Things to consider when selling STR?

Question

Just contemplating selling one of my STRs and buying MF. I purchased it in July 2020 and it has been running as a STR full-time since Feb 2021.

Any thoughts, strategies, tax consequences, etc, I should be thinking about?

John Underwood · Answer

You could do a 1031 exchange to help with taxes.

Glenna Wood · Answer

A key point that doesn't get mentioned much is that the basis of the old property flows to the new one therefore the new property depreciation will be less than expected for a  straight up purchase. Make sure you add that into your new purchase numbers. I've done multiple 1031s over 30 years. Just sold my last STR which was a 3rd in that chain and it's basis was 15% of the price. But yea for the 1st time in 40 years, no tenants!!

The 1031 biggest challenge is sticking to those iron clad dates. I never sold until I was sure I had my ID list ready and the old property ready for a quick sale. Generally, there is much less multifamily on the market. So with fewer choices to buy it's also harder to get the numbers to line up. I've had exchanges where I needed maybe $75k more cash to add in. Loan options for smaller amounts are fewer and more expensive. I often ended up taking a small boot or buying a bigger place and adding a mortgage.

Yes it takes more prep work but there is nothing better to keep Uncle at arm's length. Huge winner for your heirs if you "defer defer die" (quoting @Dave Foster).

Michael Baum · Answer

That is a tough question @Bruce Woodruff. I am a big fan of holding on to properties if they are cash flowing. Especially since it is free and clear.

What about just doing a HELOC on it for a down payment on a multi family property? I am assuming it will still do well even with a small payment on the HELOC.

I will say that the 1031 can be tricky. I had a friend who did a 1031 into a multifamily place and somehow they missed the deadline by just a few days. Now she owes the taxes. So make sure you get a good facilitator.

Ya know, you might want to look into a USDA rural loan for a multi family property. I have been looking at the program and I would have to guess that AZ has a decent number of zones for rural development. That could be a good way to keep your current STR, buy a multi family all the while you are providing housing for folks that could use it in rural areas.

Austin Steed · Answer

What's your debt on the property look like? Big factor for me when ever I'm considering selling. Also all my properties are in Columbus OH, which I expect to continue to grow.  But like others have said 1031 exhange is always the move. "Defer until you die!"

Sherief Elbassuoni · Answer

Doing 1031 exchange shoule help you with taxes

Peter Mckernan · Answer

@Bruce Woodruff 1031 should save you from recapture and the taxes.

I would confirm what other airbnbs are making now in that area, a lot of them are not making as much as they did in 2021 so the out price is a lot different from even beginning of 2022.

Grayson Spittel · Answer

@Bruce Woodruff if you own it free and clear then I would suggest a cash out refinance. Even with rates right now where they are at, so long as the numbers make sense, pull out that money tax free and use it to purchase that MF you’re thinking about. Your cash flow will obviously decrease but your cash on cash return will skyrocket as you don’t have that much cash stuck in the deal anymore.

Zach Edelman · Answer

1031 exchange for taxes for sure. Also, what market is the property you're selling located in out of curiosity?

Steven Foster Wilson · Answer

Why not refinance or do a HELOC then? Would you still get a decent cashflow if you did that? Then you could potentially keep it and get a MF.

Things to consider when selling STR?

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