1031 vs. Cash out Refi

[Ken Mull]

Contemplating a 1031 . Relinquishing one multi-family rental and acquiring a SFR for vacation rental. The 1031 puts time constraints on the deal but gives you nice tax benefits. The cash out refi give you some cash and also is tax free correct? I seem to remember some seasoning necessary for the refied property. Is that the case? Do you need to hold that property some minimum time to keep the tax benefit? What are the pros and cons to those two options? Thank you

[Bill B.]

Refis are tax free. It’s just a loan. There’s no required seasoning, if a lender will lend it to you, you’re golden. You don’t have to hold the property for any amount of time to keep the benefit but if you sell the loan will need to be paid back and you’ll owe the same capital gains and depreciation recapture just like if you hadn’t gotten a refi. And you will have paid the costs of getting the refi. So if you plan to sell and pay the taxes feel free to do that instead of the refi. 

When people say refi instead of 1031 they mean refi and keep the property. You do a 1031 because you’ve found a better deal and won’t to sell but not pay taxes. And you just outright sell when you haven’t found a better deal but are just done with owning that property or someone offers you enough you’re ok with paying the taxes.