To Sell Or Not To Sell

[Maegan Quaife]

I am not sure where to post this question, this is my first time on the BiggerPockets Forum. I am currently a resident in LA county however I own a rental property in Burien, WA. It is a duplex totaling 4 bds and 2.5 baths with modern updates, in great condition. I lived in this property for two years and have been renting it out and managing it remotely for the past 3+ years. I am thinking about selling the property as it is becoming more difficult for me to manage from a distance. I am just worried this might be a mistake as it as a high cash flowing property and my mortgage rate is a low 3.125%. However I have had to replace some major appliances recently which had put my in the defecate and added to my motivation to sell (Hot water heater, two refrigerates and a washer/dryer). I was hopping to get some feedback. I will list some specific questions bellow.

- If I use a 1031 Exchange, does the next property also have to be a duplex?
- If I did buy a duplex here in CA could I live in one side while renting out the other?
- Do I qualify for for a section 121 exclusion sense I lived on the property for the first 2 years of ownership?
(I also had to come to CA for health reasons, so I am not sure if that is an exception)
- If I use any of the above, can I use a portion of the money to pay off personal debt?
-

Lastly I would also consider recommendations for a company who offers

HELOCS (NOT cash out refi) for rental properties. Apparently this is not

offered by most major banks.

Thank you in advance for any and all feedback.

[Dave Foster]

@Maegan Quaife, Of the 4 prongs of the Internal Rate of return 2 of them are very high for you - cash flow and amortization of the loan.  Depreciation and appreciation are the other two ways you make money off that property.  As long as the property is appreciating well I'd sagree with @Jonathan Greene and say you have a very good property.  

However, the risk of significant repairs is not to be taken lightly.  One or two appliances or a new roof can wipe out years of cash flow.  And I do get the attraction to bring your property closer to you.  Here's some answers to your questions:

If I use a 1031 Exchange, does the next property also have to be a duplex? - No it can be any type of investment property

- If I did buy a duplex here in CA could I live in one side while renting out the other?  You have to buy at least as much investment property as you sold.  If the duplex sells for $500K and you exchange into a duplex in LA for $1 mil then you could use 50% of it as your primary residence.

- Do I qualify for for a section 121 exclusion sense I lived on the property for the first 2 years of ownership? It sounds like you will not have lived in the property for 2 out of the 5 years immediately prior to selling it.  So no you will not qualify for the 121 exemption.  You will have to 1031 exchange.

(I also had to come to CA for health reasons, so I am not sure if that is an exception) - You can use that reason to excuse the amount of time you lived in it.  But not the time period.  Because you're past the 5 year look back it would not qualify.

- If I use any of the above, can I use a portion of the money to pay off personal debt? You can use any money you want from the sale to pay personal loans.  Any money you touch would be taxable.  But you would shelter the rest in your 1031 exchange.