What would you do? 500k Property

Question

Hi All! I have a property that is currently worth $530k and is paid off. It's reached it's peak in value and rental value so I want to take advantage of the market and sell it for top dollar and buy something else. What would you do?

-hold the property and refinance $200k of equity?

-Pay the cap gains tax and be cash heavy for a buying opportunity with no timeline?

-do a 1031 and hope to find another deal in a super competitive and overpriced buyers market and be on a time crunch to find it?

Vinay Kolluru · Answer

@Mike Rodriguez do what the rich do: "hold forever, borrow against".

Keep the property, allow it to appreciate. But get as big an interest only HELOC as possible. And put your equity to work!

Brandon Rush · Answer

Hey Mike,

You have a nice problem on your hands! I would recommend a 1031 exchange. You can identify a new property first prior to putting your property on the market for sale. I would imagine with you potentially buying a larger property, they would be accepting of you taking a bit longer to close on the deal.

I would not worry too much about things being over priced. I think alot of it comes down to your goals. If you are looking for cashflow, then I am sure you can source a larger turnkey property that will provide that to you. If you are looking for a value add property, that may be a bit challenging to find, but I am sure its more than possible right now.

Another option is putting your 1031 into multiple investments. Maybe some into a syndication for a more passive investment and some into a large multifamily deal.

Plenty of options but I think it comes down to what your goals are.

Good luck!

Bradley Sriro · Answer

@Mike Rodriguez You have a high quality problem on your hands. I would say to leverage it and maintain the asset. If it is worth $530k, you can definitely pull out more than $200k if you do a cash out refi. Why are you limiting the amount to $200k? It is possible that you will be able to pull out a HELOC although they are a little more difficult to find for investment properties. I am assuming that it is a rental since you mentioned it reaching its peak rental value. The good thing about a cash out refi or HELOC is no taxable event since it's a loan. The 1031 is always a great option but its just about getting the timing right for the next purchase(s). If you end up selling it and purchasing in the same market area, there is a real possibility that the gain is relative in that the prices of the next deal will also be equally elevated. Regardless of which option you choose, you are in a good position. Best of luck in whichever you choose! Please keep us all posted.

Dave Foster · Answer

@Mike Rodriguez, Congratulations on that free and clear property.  That's a great accomplishment.  This is the perfect time to accomplish several goals at once.

Sell and 1031 into two replacements.  One of them will be a $400K free and clear property.  One of them will be a property you use the remaining cash as a down payment for.  When you do this you concentrate your equity so it's available down the road if you find another property you want.  But you don't have to pay the loan costs now.  And you still get the leverage bump from the second property.  You also still have one property that is free from. mortgage and market risk.

You do have to get over the fear of not finding a good replacement.  We're still seeing clients finding good replacements they like over 90% of the time.

Patrick Drury · Answer

@Mike RodriguezDoing cash-out refinances is a great way to pull out the equity while still holding on to the property. Although I believe you mentioned it's maxed out on the rents (unless I read it wrong). Keep in mind if the rents can't go up and you slap a mortgage on it at 530k will it still make sense? Depending on your portfolio and job, it may be beneficial depending on your situation to just 1031 into something in a nicer location that's more hands-off.

Basit Siddiqi · Answer

@Mike RodriguezSomethings to be mindful based on your options.Option 1 doesn't sound so great as you think the value is at its peak meaning you think the value will stay flat or decrease in value. The cost of a refinance is considerable less than the cost of sale in option 2 / option 3.The sale of a property will prolly cost you around at least $35,000 when you factor in 6% commission, title work costs and other closing costs. This is a sunk cost and not something you can make up for when you purchase a new property.

Cj Powderhorn · Answer

I totally feel your pain! However, how do you know it's reached it's peak in rental value? I just fully rehabbed a property and I'm now on the fence about selling it or looking for a higher end renter.  I know that some consider a 1031 into 'raw land' as a placeholder-I believe your costs are very limited if you go this route.  If I end up selling, we are probably going to buy something in BC, Canada. No 1031, rising prices but the US$ is strong (and it's somewhere we would like to live!

What would you do? 500k Property

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