Indecision about listing this condo and next options. How to decide?

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Indecision about listing this condo and next options. How to decide?

Erin Devers
Member since 2022 · 7 posts · 2 votes

Hello, I have a rental condo (formerly my primary residence) that I am considering selling. It breaks even, essentially, and I am only hanging onto it because I was unsure of my job/future path at the time. That is — it’s not a real part of my financial strategy. I am having some difficulty pulling the listing trigger for a few reasons:

— I will probably retire in a few years. I may want a vacation or second house elsewhere (instead of a mile away where this one is)

— I wonder if I should 1031 it into a property located in a resort area where I could at least visit it a few times a year and enjoy it. Visiting the present property for tenant issues is a bit of a drag.

— Importantly, it is approaching its 2-of-last-5-years deadline, which is prompting my current indecision.

I seem to land on a different option every alternating day. How do you make these decisions? Am I missing an obvious option? Sincerely appreciate your thoughts~

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Travis Bretches
Member since 2021 · 4 posts · 4 votes
7mo

Not an expert by any means so I'll approach it his as if I was in your shoes...

I have a condo that isn't cash flowing, and I'm nearing retirement with my tax exclusion expiring. It sounds like I have some equity in the property and I desire to purchase another property somewhere else. 

I would ask myself the following questions: 

1. Do I expect the property to start providing passive retirement income in the near future?
2. In the near future do I believe the increase in the homes equity will compensate for the lost 2-of-last-5 tax benefit. 
3. Does having a non cash flowing property serve as a liability to my retirement portfolio. 

Personally it sounds like taking the equity while it is tax advantaged is the right move. That is unless you feel strongly that the answer to questions 1 and 2 are yes and 3 is no.

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  • Travis Bretches
    Member since 2021 · 4 posts · 4 votes
    7mo

    Not an expert by any means so I'll approach it his as if I was in your shoes...

    I have a condo that isn't cash flowing, and I'm nearing retirement with my tax exclusion expiring. It sounds like I have some equity in the property and I desire to purchase another property somewhere else. 

    I would ask myself the following questions: 

    1. Do I expect the property to start providing passive retirement income in the near future?
    2. In the near future do I believe the increase in the homes equity will compensate for the lost 2-of-last-5 tax benefit. 
    3. Does having a non cash flowing property serve as a liability to my retirement portfolio. 

    Personally it sounds like taking the equity while it is tax advantaged is the right move. That is unless you feel strongly that the answer to questions 1 and 2 are yes and 3 is no.

    1Reply
    • Erin Devers
      OP
      Member since 2022 · 7 posts · 2 votes
      7mo
      Quote from @Travis Bretches:

      Not an expert by any means so I'll approach it his as if I was in your shoes...

      I have a condo that isn't cash flowing, and I'm nearing retirement with my tax exclusion expiring. It sounds like I have some equity in the property and I desire to purchase another property somewhere else. 

      I would ask myself the following questions: 

      1. Do I expect the property to start providing passive retirement income in the near future?
      2. In the near future do I believe the increase in the homes equity will compensate for the lost 2-of-last-5 tax benefit. 
      3. Does having a non cash flowing property serve as a liability to my retirement portfolio. 

      Personally it sounds like taking the equity while it is tax advantaged is the right move. That is unless you feel strongly that the answer to questions 1 and 2 are yes and 3 is no.


       haha: no-no-unsure. This is a good way to look at it. I have been reluctant to give it up because I really do love the place (my former home) but I am nervous about hanging onto it now. Prices in the neighborhood have seemingly topped out and I worry about fires (I'm in SoCal). I am a bit stressed this close to retirement.

      0Reply
  • Neshera NasirPro Member
    Investor · Florida & Georgia · Member since 2023 · 14 posts · 4 votes
    7mo
    Great question, and you’re actually not missing anything obvious, this is genuinely a multi-variable decision. Here’s how I’d think through it: First, the 2-of-5 deadline is your real forcing function. If you’re approaching it and you have any intention of selling and using the primary residence exclusion ($250k single / $500k married), that clock matters more than anything else in your list. Once that window closes, you lose potentially a significant tax-free gain. So the first question is: how many months do you have left, and what’s your estimated gain? Run that number first before anything else. Second, the 1031 into a resort property is a legitimate move but only if the numbers work as a rental, not just as a vacation home you enjoy. A lot of people 1031 into “lifestyle” properties and end up with a property that cash flows poorly because they’re emotionally attached to it. Ask yourself: if you could never visit it, would it still make sense as an investment? If yes, great. If no, be careful. The formula I’d use to decide: 1. Calculate your gain if you sell now vs. after the exclusion window closes -> that’s your tax cost of waiting 2. Pull comps on what a resort area rental actually nets after management fees, vacancy, and seasonality 3. Compare that net yield to what you could get deploying those proceeds elsewhere The “break even” property is often the right one to exit. It’s not building wealth, it’s just holding it, and costing you opportunity cost every month. What market is the condo in? Happy to help you think through the numbers.
    1Reply
    • Erin Devers
      OP
      Member since 2022 · 7 posts · 2 votes
      7mo
      Quote from @Neshera Nasir:
      Great question, and you’re actually not missing anything obvious, this is genuinely a multi-variable decision. Here’s how I’d think through it: First, the 2-of-5 deadline is your real forcing function. If you’re approaching it and you have any intention of selling and using the primary residence exclusion ($250k single / $500k married), that clock matters more than anything else in your list. Once that window closes, you lose potentially a significant tax-free gain. So the first question is: how many months do you have left, and what’s your estimated gain? Run that number first before anything else. Second, the 1031 into a resort property is a legitimate move but only if the numbers work as a rental, not just as a vacation home you enjoy. A lot of people 1031 into “lifestyle” properties and end up with a property that cash flows poorly because they’re emotionally attached to it. Ask yourself: if you could never visit it, would it still make sense as an investment? If yes, great. If no, be careful. The formula I’d use to decide: 1. Calculate your gain if you sell now vs. after the exclusion window closes -> that’s your tax cost of waiting 2. Pull comps on what a resort area rental actually nets after management fees, vacancy, and seasonality 3. Compare that net yield to what you could get deploying those proceeds elsewhere The “break even” property is often the right one to exit. It’s not building wealth, it’s just holding it, and costing you opportunity cost every month. What market is the condo in? Happy to help you think through the numbers.

       This is a really thoughtful reply; much appreciated. I have been emotionally attached to it more than anything, is probably where I land. It breaks even cash flow-wise, but has appreciated greatly, especially since I bought just before Covid. It's in Orange County, CA.

      I think I should probably sell it, not worry about a 1031, and relax for awhile. I'll just miss it : [

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    • Neshera NasirPro Member
      Investor · Florida & Georgia · Member since 2023 · 14 posts · 4 votes
      7mo

      @Erin Devers i'm glad it was helpful. I know that feeling. I recently went through selling a beach front condo i absolutely loved. However, I sold it and gave a private loan to a accredited investors for a fix and flip. I'm still making income from the proceeds. 

      Feel free to message me anytime! Great connecting! 

      1Reply
  • Chris Kersey
    Real Estate Agent · Houston, TX · Member since 2022 · 135 posts · 84 votes
    7mo

    Hey Erin, 

    It's hard to give the best path forward with out knowing a little more of the behind the scenes info as in : What is you're equity position in the property, are you self managing..ect..

    Are you aware of the current sales price value and potential profit to be realized? 

    Is this in a highly appreciating area? 

    Feel free to reach out in a private message and I'd be happy to offer my opinion. Im a realtor, builder/developer, investor in Central Houston. 

    - Chris Kersey 

    1Reply
    • Erin Devers
      OP
      Member since 2022 · 7 posts · 2 votes
      7mo
      Quote from @Chris Kersey:

      Hey Erin, 

      It's hard to give the best path forward with out knowing a little more of the behind the scenes info as in : What is you're equity position in the property, are you self managing..ect..

      Are you aware of the current sales price value and potential profit to be realized? 

      Is this in a highly appreciating area? 

      Feel free to reach out in a private message and I'd be happy to offer my opinion. Im a realtor, builder/developer, investor in Central Houston. 

      - Chris Kersey 

      Hi. Good questions. I have quite a bit of equity in this 1.2M SoCal property. It’s a nice, residential property, excluded from STR. I manage it. My tenant is fine.  I worry about fires. Sometimes I want a place in Colorado where I generally vacation. 
      0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7mo

    @Erin Devers, If you sell the property and take advantage of the 121 exclusion, there might not be a need for a 1031 exchange unless you're left with a little tax left over. In that case, you could also do an exchange and defer any remaining tax from the exclusion and reinvest it into another investment property. This applies to any type of investment property as long as it's held for productive use. But I wouldn't worry about the timing right now. You're uncertain. And that's fine - don't sweat it now. Whether you take the primary exemption or wait till your plan is more formed, you'll still be able to use the 1031 exchange.

    Some investors who are looking to retire in the near future will consolidate their RE portfolio and find a property they might want to retire in one day, and later down the line convert their investment property to their primary residence. When you convert an investment property to your primary residence, it doesn't create a taxable event unless you sell the property. In that case, you would recapture any depreciation for the duration it was held for productive use vs your primary residence.

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