Decision: Keep or Upgrade

[Bailey Christenson]

I'm looking for some thoughts from the community on a situation I am working through currently with a rental property I own in the Denver area, and the dilemma I have is whether to keep the property and take out a HELOC to purchase another rental property someday when I am ready for that next step, or whether I should sell the property and utilize the powers of the 1031 exchange to purchase a bigger/better rental property(ies).

A little information about the current rental property. I bought in 2014 and have a quote from a realtor that I could sell and profit ~$140K (thank you Denver market for the nice return!) The property is not the most "renter friendly" - it does not have A/C, has mostly carpet, has original windows (~30 years old), is in an HOA community (which can just be a pain to deal with, plus the fees), has a broken sprinkler system, the electrical wiring is all screwed up, needs an electrical panel upgrade in order to put in A/C, has a swamp cooler (aka an evaporative cooler, which is more of a pain for me than anything), and the list goes on.

My major question is whether I should just give up this property with the hopes that I could find something through a 1031 exchange that maybe does have some of these things that make a property more “renter friendly” like A/C, new windows, hardwood floors, a functioning sprinkler system, etc. An important note here, I am not intending to have a slew of rental properties to my name. I could envision maybe having 2-3 in total. That said, is it worth keeping this original property even with all its issues? Or is it time to say goodbye to my first “baby” and put the proceeds towards something bigger and better (maybe a duplex or something)?!

[Paul Moore]

Bailey, I don't think I would do a 1031 exchange unless you have already identified the replacement property.  I've seen too many go sideways due to time pressure and an overheated market.  The same forces that cause yours to be high-priced are obviously causing others to be equally so... unless you have access to an unusual deal.