1031 Exchange - Phoenix or Kansas (KS/MO)

[Maria Pereyra]

Hello! 

I am new to BPs, wished I would have signed up earlier! I started my real estate journey in 2005 with the first property being in Austin (more below).  I have other properties in AZ, which I do not directly manage (I have a full-time job with a demanding schedule), 

At any rate, here I am and am seeking perspective around the following:

- Selling a SFH in Austin, which has a great location, amazing school district, but selling due to very high property taxes ($12K for 2021; $9K for 2022). Selling it for $450K.

- Exchanging it for another property to limit the tax impact - my criteria thus far has been mid-class neighborhood with decent school ratings

- Phoenix could be an option (I live here) but the affordable/newer properties are in the suburbs where schools ratings are poor. Examples. could be Buckeye, Surprise, Queen Creek. The property taxes are reasonable and so the insurance (let's say $3000 for both or maybe a bit less)

- Kansas (Lee Summit [MO] or Overland Park [KS]) are contenders as well where buying property is more affordable BUT property taxes and insurance, combined are $6K'ish, with better ranking schools. 

My strategy to date has been buying SFHs with decent school ratings. I think from a reseller standpoint it is better. Now, for this exchange, based on property costs that fall within my criteria, the CoC is not very high for either market - about 5-6%, so not great but better than paying the hefty tax for capital gains ($100K'ish or higher once depreciation is added). What is your perspective on what would be the benefits or drawbacks for either location. I think that potentially there could be other markets, but at the moment I am not considering them as I am not familiar with them.

Thank you so much for your input!

Maria
 

[Dave Foster]

@Maria Pereyra, There's quite a bit of difference in taxation and land lord rights between Kansas and MO even though the KC metro contains both.  Know what you're getting into between locations that seem the same but are in different states with very different politics and policies.

The great thing about your 1031 is that you can go anywhere.  Another great thing about a 1031 is that you don't necessarily have to choose one or the other.  It's perfectly fine to sell one property and use the proceeds as down payments on multiple properties.  As long a you purchase at least as much as you sell and use all of the proceeds in your purchase or purchases you'll defer all tax.