Sell or Heloc and long term rent

[Shea Prior]

Hi I'm Shea. I am trying to get started on my path to financial freedom and I need some advice. I have a home that I purchased USDA back in 2018 as my primary residence. Since then I've gotten engaged and we have purchased a new house that we live in back in February this year. I feel like I've made a lot of good first steps here by creating an LLC, putting in a little elbow grease to get the property rent ready, and listed it for rent on Facebook and all the usual suspects. I have had it listed since August 30th and have had several people interested, and one perspective tenant actually put in an application but ultimately decided not to commit to signing the lease. I am wondering if I need to sell the house and do a 1031 exchange to capture all the equity that has been built up over the past 7 years, and perhaps invest in a different market that I might be able to get a long term tenant into a property quicker for cash flow. Or should I keep looking for a tenant here but maybe lower the rent by $50 or $100, and seek out a HELOC to capture the equity that way. The ultimate goal is to try to look for a second investment property, and use the equity in this house as my jumping off point. I am currently covering monthly holding costs with my day job, which is manageable, but obviously it's not something I would like to do long-term. As it stands I have about $82k in equity in the house so there's potential there. Am I just being impatient? Should I lower my monthly rent? I know it's a buyer's market right now, but should I sell and try to just purchase a property in a more desirable area? Ideas/advice is appreciated

[Dan H.]

I believe you imply that you lived in the house since 2018 until fairly recently.  I also beilieve you are implying that you are first placing this into the rental market.  is my interpretation correct?

@Dave Foster knows 1031 way better than I do but if I am correct in my interpretation

1) you likely do not need the 1031because you can exempt $250k of gains because it was lived in for 2 of 5 years

2) if it has not been a rental it does not qualify for 1031 

If something I stated is incorrect, Dave can enlighten both of us.

As to your dilemma, first recognize the advantages of the 2 of 5 year rule and that it vanishes if rented 3 years.  Knowing this advantage of selling an owner occupied loan, determine if the numbers indicate that you should keep it as a rental.

If it is a good rental, the reason for it not renting is price.  Even a piece of $hit property will rent at the right price.  Vacancy adds up fast.  It is typically better to reduce rent for a quick tenant placement than to have a longer vacancy.   So if you decide it is a good rental, reduce the rent to get a tenant into the unit.  If you have 2 open houses without a qualified tenant, reduce the rent amount. 

Good luck