What would you do with 100k that you were about to 1031 Exchange?

Question

Hello Guys,

If you were about to 1031 exchange a couple of properties and they are about to profit you 100k, what would you 1031 exchange that money into? In other words what strategy would you use to turn that 100k into more profit faster ?

-Would you buy 1 single family home ?

-1 townhouse or condo ?

-3 townhouses ($32,333 down into each townhouse) ?

-1 Triplex ?

Please explain your answer, the goal is to create 100k into 500k the fastest way possible.

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Dave Foster · Answer

Account Closed, There's another component to your question that is critical. What are you selling the property for. If you're coming out of it with $100K cash that is only half of the 1031 requirement to avoid all tax. You also have to purchase at least as much as you sell. And that might really impact your choice.

You may have to buy multiple properties using down payments. But that could geometrically increase your leverage risk. And I feel pretty confident being old as dirt that your goal to get from 100 to 500 is absolutely doable. But it will probably take you across this bull market and into a corrected market.

And that's OK because that's what REI's do. Position yourself as well as you can right now while keeping a sharp look at how you will move in the future.

So that being said, if you think interest rates have only started to climb then leverage now is a good thing. Lock in your money now and as rates continue to rise you'll see more and more rentors staying in the rental market longer.

But beware because the rising interest rate climate could change quickly and with a correction we could see govt policy in a heartbeat that reduces barriers to borrowing and ownership. In that event you don't necessarily want highly leveraged rentals. You want lower leverage so you have equity to borrow more cheaply on. And properties lending themselves to owner occupants would be a good bet.

Also, there's the nuance of your particular area. What flies in PHX is not the same as in Birmingham or LA.

Start with your actual 1031 reinvestment requirements and build the strategy from there.

What would you do with 100k that you were about to 1031 Exchange?

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