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Updated 1 day ago on . Most recent reply
Selling first investment property or to keep it
I have a condo that has gained significant equity as I bought it at 255k. I have about 50k invested into it for repairs and are discussing putting it on the market for $540,000. I’m still in the sweet spot as capital gains will not hit me until May of 2026. If everything were to go perfectly and after taxes, I imagine I would walk away with around 200k. What I’d like to do is invest this into two more rental properties over the next two years in a surrounding community as we are priced out of Durango where the condo is located. The mortgage is $1350.00 at 2.7% interest for the condo and I can rent it out for at least $2000/month so there’s some decent rental income. The neighborhood is great with wonderful schools and the city is investing, significant funds to improve the main street area two blocks from the condo. It’s really been a phenomenal opportunity and I worry that I may be selling just because I’m afraid of capital gains. Even if I do a 1031 exchange the inventory in our area seems to be a little slim and obviously come with more risk than the condo that I currently have. I would really like investors that have experience and their opinion on how they might move forward. Thank you for your time.
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@Chelsea Gardner You’re in a great position, and it’s smart that you’re thinking through the long-term impact of your decision. Based on what you’ve shared, here’s how I’d think about it:
- First, since the condo is not your primary residence, you won’t qualify for the Section 121 exclusion, so any capital gains would be fully taxable—including depreciation recapture. That makes the tax piece more significant if you sell.
- On the flip side, you’ve got a 2.7% mortgage on a property that’s cash flowing at $2,000/month against a $1,350 payment. That’s a solid spread, and in today’s interest rate environment, that loan alone is an asset worth holding onto.
- You’re also sitting in a great neighborhood with strong fundamentals—schools, city investment, and long-term growth potential. That kind of location tends to age well over time and usually performs better than average.
- Now, if you do decide to sell, a 1031 exchange could defer your capital gains taxes, but you’ll need to identify new properties quickly, and it sounds like inventory is tight where you’re looking. That could lead you to settle for a lower-quality asset or market, which could ultimately reduce your returns.
- Instead, you might consider a cash-out refinance or HELOC to tap into your equity while keeping the condo. That way, you can use the funds to invest in new properties without giving up a well-performing asset or triggering a taxable event.
Unless you have a very specific plan for those replacement properties, I'd lean toward holding the condo, locking in the cash flow and appreciation, and using a refi or HELOC to fund the next phase of growth. Then when you're ready, you can still use a 1031 or sell strategically when you've got the right deal lined up.
Definitely talk to a real estate CPA before you pull the trigger, they can walk you through the capital gains, depreciation recapture, and run side-by-side scenarios to help you make the most tax-efficient decision.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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