Keep paid off property or do 1031

[Jordan Blanton]

Tenant is moving out of paid off property in August. The property was purchased seven years ago for 56k in a C- neighborhood, which is now paid off and worth approximately 170k. Light renovation of the kitchen and should be able to see increase of rent of $250-$300 month. After expenses, it will be cash flowing 1k/month.

My thought of doing a 1031 exchange seems like an option..trade in a 170k house for a few 250k homes and increase my portfolio by 600k. But that would decrease my cash flow significantly. In my local market, I can still find cash flowing properties in that price range, approx. 100-200 per SFH. Just tough to do in this market with mulitiple offers and a very tight window with the 1031. And before anyone asks, Multi-families are tough to get, as I've been outbid by cash offers three times now in the past two months. So to count on scoring one of those in the small window for a 1031 would be tough.

Should I just keep the property, do light reno's and increase rent and bank cash flow? Or get with an expierenced realtor, commit to 1031, and increase portfolio by considerable margin and sacrifice cash flow now? I'm 32 years old, with a good paying w-2 with an always abundance of overtime availability. Lastly, I do have enough cash reserve to acquire more property at the moment, which is my plan in the next 2-6 weeks. 

Thoughts are greatly appreciated. 

[Ty Coutts]

Hey Jordan,

There are a few pros and cons to consider for each option here.

Keep the Current Property and Increase Cash Flow
Pros:

Stable Income-Your current property is paid off and cash flowing $1,000 per month after expenses. This provides a steady income stream with minimal risk.

Appreciation Potential-The property has appreciated significantly since purchase, and you could continue to benefit from further appreciation in the future.

Minimal Hassle-You're already familiar with the property, and since it's paid off, you don't have mortgage payments or associated risks.

Cons:

Limited Portfolio Growth-Keeping the property means your investment portfolio remains concentrated in one property. Diversifying your portfolio can reduce risk and potentially increase overall returns.

Opportunity Cost-You might miss out on potential opportunities to leverage your equity and acquire more properties, especially in a market where finding cash flowing properties is challenging.

Pursue a 1031 Exchange
Pros:

Portfolio Expansion-A 1031 exchange allows you to diversify and increase your investment portfolio by acquiring multiple properties. This can potentially enhance long-term wealth building.

Tax Deferral-By reinvesting your proceeds into like-kind properties through a 1031 exchange, you can defer capital gains taxes, allowing you to reinvest more capital.

Market Timing-Despite the competitive market, a 1031 exchange gives you a defined timeline to identify and acquire properties, potentially putting you ahead of other buyers who might not be as motivated by a tight deadline.

Cons:

Lower Initial Cash Flow-Acquiring additional properties may reduce your immediate cash flow, especially if properties in your target market are not as cash flow positive as your current property.

Risk of Overpaying-In a competitive market, there's a risk of overpaying for properties just to meet the exchange deadline, which could impact your overall returns.

Either one is a valid option, but overall it depends what your financial goals and restrictions are. Hope this helped! Please feel free to reach out directly if you would like to discuss further or if you have any other questions!