Contemplating 1031 or Profit

[Alecia Bolton]

We're planning on selling our SFR rental property, and we'll net at least $90k. We're also be listing it for $85k more than what it was purchased for (it was originally owner occupied, and has been a rental for 5 years). It has never cash flowed, and so has deferred losses for the past 5 years. In theory, the losses would offset at least some if not all the gain.

I'm a wholesaler, and want to also flip houses, and our plan to build capital was to tap into a home equity loan on our primary for the down payment/rehab costs, when we went that route, if we didn't have the reserves from the wholesaling built up.

But our end game is to own enough doors (multi-family complexes) to generate enough passive income to replace the families w-2 income. That's our 5 year from now goal.  Shorter goal is to replace my income with active/passive income in a year.  We've been assuming cash flow of $200/door.

So here's the questions.  We were originally planning on using the $90k profit to pay off a 10% loan and bank the other $25k to use in the flipping business.  But in my mind, that seems to be focusing on the short term instead of the long term.  And i'm very motivated to start generating the passive income.  

So, does it make more sense to pocket the profit and build up the flipping business and pay off the loan, or do a 1031 into a multi-family, or several SFR, in a cheaper part of the country (i'm in seattle). And if so, where does that make sense.

Appreciate your input.