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

Question

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~

Neshera Nasir · Answer

@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!

Chris Kersey · Answer

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

Travis Bretches · Answer

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.

Dave Foster · Answer

@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.

Erin Devers · Answer

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 : [

Erin Devers · Answer

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.

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

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