What's your exit strategy on your turnkey property?

[Tim Harwick]

Hey friends, 

For those of you who own a turnkey property, I'm just curious about your exit strategy. I'm still holding a turnkey property I bought in late 2013. It's cash flowing fine and I have no intention to sell soon, but I'm thinking about either doing a 1030 exchange for something bigger or keep it and get more. But I'm curious to know what others have done. Anyone go the 1030 route? Or are most of you buying and holding?

Thanks!

[Dave Foster]

@Tim Harwick, The 1031 exchange should really be thought of as a tool specifically designed for the buy and hold investor.  In order to qualify for a 1031 exchange you must be selling property that you had the intent of holding for productive use.  So any kind of short term intent like fix n flipping does not qualify anyway.

So for a buy and holder the 1031 is the tool to use when and if you ever want to reposition.  Whether you keep it or sell it and 1031 is really a question of the performance of that particular property.  If it's a winner for you now and you don't see any issues like a changing neighborhood, looming cap ex, or macro market  issues, then keep it.

Don't forget however that you'll want make sure and run proformas for your property for after you refi as well? Many times that refi can do serious damage to your NOI. And sometimes even it can boost your ROI which is fun but decrease your NOI to a point where you're at risk of being under capitalized.

The other point to consider is that when you refi you will not have access to as much buying power as if you simply sold and 1031d.  A refi may only give you 75% of equity.  Where a sale and 1031 opens up 100% of the equity in a property.