Interested in opinion regarding exchanging or keeping properties

[Guy Azta]

Hi everyone. I'm new to BP. Been listening to many of their podcasts in the last 2 months or so and finally signed up. I have a particular scenario and would love to get others opinion.

I'm an out-of-state buy and hold guy and most of my properties are SFRs (bee getting into 2-4 units with a goal of moving to apartments, just like many others). Been doing this for number of years and so far ,been pretty happy with how it's going. I have 3 properties in Greater Orlando that I bought with the original tenants, and the rent is $200-300 below market rate per house. A month ago or so the taxes went up on all of them, creating a near breakeven scenario for me. I was thinking of a few options (aside for fighting the tax authority to lower them back on the grounds of low rent):

1. Live with it. These are all nice houses and have appreciated more than expected since I bought them. These tenants will eventually move out, but who knows when.

2. Exchange each of them individually into nicer/better houses (using 1031, never done this before) where I have a much better cash flow

3. Exchange 2 or 3 of them to buy an apartment building. Apartments are my goal, but haven't bought any so far and still a beginner on that aspect

After multiple conversations with the property managers, I don't think doing a rent hike to market rate is realistic for these tenants (small increases yes), and I guess I'm not the type of person who wants to kick people out and mess with their lives (these are all families). Sure this option has its merits, but not for me.

I'd love to know if someone has been in a similar situation and what you've done to resolve it and how it went.

Many thanks!

[Dave Foster]

@Guy Azta, You've actually got some great options there. If you're wanting to move into a larger product with the sales of those then a 1031 "consolidation exchange is what you want. Sell two or three and buy one larger one. If you want to do 1031s for one to one exchanges that works as well. Sounds like your model would let you put that appreciated money into an area or product that could net out greater returns. Getting to use the deferred tax dollars in your next purchase as well i a big ROI booster.

A 1031 exchange is not expensive or complicated but there are some very specific rules you must follow.  The most important key is that you must use a qualified intermediary to document the exchange and they must be in place prior to closing your sale.  They should be your guide as you go through the process.