Should I Exit and Redeploy My Equity?

[Scott McMillan]

Hi everyone! First time post'er, just found this site from listening to the Mad Fientist podcast and have been binging on former BP podcasts left and right. About me... I was always interested in real estate and grew up reading many of the books recommended on the podcasts by the time I was 20. I ended up buying my first personal residence house at 24 taking advantage of having roommates. I bought at the absolute top of the market thinking I got a deal by offering 20k less than the listed price and using a seller financed interest free (first 5 years, balloon after 10) second loan (15% purchase price) for a brand new build. 2 weeks after closing Bear Sterns collapsed and the bottom fell out of the market. Over the next 2 years my home value dropped 55%. During that time I accepted a new job that moved me from the West Coast to the East Coast, thus turning my home that was seriously underwater into a rental at well below my mortgage. Luckily my new job paid enough to cover my new rent and the difference in the mortgage, I have written off some serious losses from my personal taxes bringing my effective tax rate down to about 18%. Moving along... after 9 years, 2 refinances, and a renegotiation of the purchase price to settle the 2nd mortgage for a fraction of the amount I owed on it (most other homes on my street went into foreclosure so my builder was happy to accept any money for the second mortgage), and the market rebounding to above what I originally paid for the house I have some serious equity in it. That being said it has never in 9 years been cash flow positive, although it would have been this year without property taxes increasing. My wife and I just bought a house on the East Coast now and I have been wondering what to do with my rental across the country. I have absolutely wonderful tenants, been in the house for about 5.5 years with another 1.5 years left on the current lease. I know for a fact that I am renting the house for below market rent but feel very loyal to my tenants, they have never called me once in 5 years for an issue and fix anything themselves as well as do all their own landscaping. After finding this site and listening to the podcasts I think it may finally be time to move on from this house though. I have probably 175k in equity in it partly due to a good amount of accumulated depreciation. I'm in the understanding that to avoid a tax hit I need to perform a 1031 exchange. My question is I have no idea of an exit strategy, ideally I think I would like to move into multi unit properties, but I also have someone who is looking for a financier for flips which sounds tricky with a 1031 situation. Any tips would be greatly appreciated! Thank you Scott