Exit Strategies - Capturing Appreciation on Primary Residence

[Ben Booker]

Hi Everyone,

Situation: Right now I am working in the San Fernando Valley (just north of Los Angeles) and living in Santa Clarita Valley (just north of San Fernando Valley). I own a 2b2b condo in Santa Clarita which I bought in 2015 for $226k. Right now, Zillow, Trulia, and Redfin have my condo estimated at $261k (the average of the three sites).

Question: The market is very hot in this area and I anticipate a market correction coming soon. I would like to capture the equity in my home before a market correction. I am anticipating only living in the Santa Clarita area for one more year (planning on moving to a market with much lower cost of living - i.e. arbitrage-ish killing on selling my appreciated Santa Clarita house in super inflated market and using that to start my first real estate investments in less inflated-more affordable market). Any recommendations on an exist strategies for capturing the appreciation an reinvesting for a short term period before I move? The options that came to mind (in order of most preferred to least) was watching the market close and not selling unless apparent that market was heading down, buying a flip that I could sell in a year if the market continued to climb, or I could gain some profit/break even if market stayed flat, or cash flow instead of flip if there was a precipitous market fall and manage from a distance. Any creative ideas that I haven't mentioned?

Let me know if you have any follow up questions.

Thank you,

P.S. No experience flipping or property management (learning and preparing though).

[Bill Exeter]

Hi @Jeff B., 

The 1031 Exchange would not apply here as the property is his primary residence.  The 1031 Exchange only applies to rental, investment or business use properties.  The sale of his primary residence will actually fall under Section 121 of the Internal Revenue Code ("121 Exclusion").  He would qualify for $250,000 in tax-free gain as long as he can say that he has owned and lived in the property as his primary residence for at least a total of 24 months out of the last 60 months (based on the closing date).