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Updated over 3 years ago on . Most recent reply
1031 or cash out refi?
Hi bought a personal residence condo in 2009 for 480K in Southern California. The area has improved. It's been rented out the past 7 years, minus a 9 month personal-residence stint where I refi'd to a great rate (3.62%). I only owe 270K now. The condo should be worth about 620K now and I would like to buy a place to live in (immediately or eventually). So I am wondering: 1-should I cash out refi and take a higher interest rate to have cash in hand for another down payment? OR 2-Should I sell the property, take the $ and buy another place as a 1031 exchange and then move into it in a few years?
I'm not in a rush to buy but do want to maximize the equity and get something nice I would want to live in myself eventually. I don't want to go back to that condo because the neighborhood is nice but not close to my industry.
What is the best move, long-term?
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@Alexander Zurn, I think @Mary Gold, has the right idea. "Like kind" for 1031 purposes is any kind of investment real estate for any other kind of investment real estate. What she would be doing is selling an investment property and buying an investment property and then later in a couple of years possibly converting that property into her primary residence. Nothing wrong with that. There's even a 2 year safe harbor from the IRS with some other stipulations.
The only thing I can think of that might push the balance either way is that if you 1031 you'll have to be getting investment financing on the new property which might not be as advantageous as you would like. And then after two years you're stuck either with a higher interest rate than you want or a second refinance into owner occupied.
On the other hand though if you refi you have access to less cash. You can get an owner occupied interest rate from the get go. You don't have to use it as investment for 2 years before moving in. But... you're still stuck with the investment property and must decide whether to later sell and take the profit taxable. Or do a 1031 into another investment property which might stretch you if your plan doesn't include holding investment real estate for life.
- Dave Foster
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