1031 Exchange Scenario - worth it or not?

[Cole Hopkins]

Hi All,

I have been investing in Charleston, SC for about 4 years now and recently continue to wonder if its in my best interest to do a 1031 exchange on my first duplex purchased in 2014. I would love to know your thoughts.

Property Specifics: The duplex was purchased in 2014 for around 250k in an up and coming area in DT Charleston. Since then, I have fixed it up a bit (put in about 35K to increase rents). About a year ago I did a cashout refinance to secure funds for other properties and the property reappraised for $480k. With that said, I now have more properties but with the new mortgage (after the refinance) I am making just enough on rents to pay the mortgage (no cash flow). 

My Thoughts:

With interest rates on the rise and the fact that I am basically breaking even on the property with no positive cashflow, I wonder if it in my best interest to sell and do a 1031 exchange into a larger multifamily that would generate positive cashflow before interest rates become to high for the numbers to make sense. 

Since the property was re-appraised at $480K over a year ago the area has continued to improve and seen further  increases in real estate prices. I anticipate that if I sold, I could probably get on the low side $500K and on the upside maybe $550K/$600K. Using the conservative low sale price of $500K this would net me about $170K to use as a down payment on something much larger in a more up and coming area. I could easily put in an additional 30k or so and purchase something in the range of $800K. I guess my concern is if I sell premature and the property values continue to increase and I miss out but there is no telling and I just can't see the prices increasing all that much in the near term but perhaps after the next dip which could be another 5-10 years (who knows?)

In addition to the potential increase in cashflow by doing a 1031 Exchange, it would give me peace of mind as this property is the only one in my portfolio that is exposed to a high risk of flooding during a natural disaster as it is located in a very low lying area.

I am happy to provide additional numbers/details if there is anything I am leaving out. I also understand that a lot of it will all depend on what I can find in terms of a property and what kind of numbers I will see in cashflow but my thoughts are that if I look hard enough I can do better than my current situation - getting no cashflow. Maybe I just answered my own question but this would be a big move for me and I just want to make sure I cross all my t's and dot all of my i's. 

I appreciate any and all feedback on your thoughts. 

Thanks in advanced, 

Cole