To 1031 or Not to 1031, That is the Question

[David Harriman]

I had good timing and got a good deal on a rental property I purchased in the Denver area about 2.5 years ago. I bought it for $238k, put 20% down. Rents are up to $1850/month in the area, but the home value is up to about $375k for the property. The way I look at it is, I wouldn't buy a home for $375k that I could only rent for $1850, so why continue owning it if money can be better used elsewhere? I know it's impossible to time the market, and the Denver area may have plenty more room for growth, but I'm more interested in the cash-flow game than riding the appreciation wave. Having said that, I'm torn between which route makes the most sense: Do I 1031 to save on tax, or do I pay the taxman on appreciation, but keep flexibility with what I can do with the cash?

The downside I see with 1031ing is that it forces me to get into a relatively move-in ready property since I can't roll my equity into rehab.

The upside for paying gains on my equity is that I have the flexibility to sit on the cash indefinitely while looking for a sweet deal, and could buy something that's needing some love, and have the cash to make it happen.

A little about me and my goals:

-My risk tolerance is about 5 or 6 out of 10.

-I'm primarily interested in building a portfolio of cash flowing rentals (open to multi-family or SFR). I'm more interested in the potential for cash flow than I am for appreciation (though both would be great!).

-I'd like to have 10 to 15 doors 10 years from now.

-I am self-employed and have a fairly flexible schedule.

-I'm open to having to hire out moderate rehab on a property I purchase if the numbers make sense.

-I'm most likely going to be buying in either CO Springs, or Omaha.

I'm new to this site, and appreciate your feedback. Thanks in advance!