To Sell and 1031 or To Keep?

[Nick Ferguson]

I have a property, my first that I ever purchased, that is about 4 and a half hours from where I live.  I manage it remotely and have two trusted people that handle maintenance/repairs/tenant issues etc.  I haven't seen the house in about 2 years so it's not like I'm running down there dealing with stuff myself but ultimately I don't have it under true "property management"

I owe about 29K on the mortgage and about 13K on a HELOC that I used to purchase another property a year and a half ago. It's a single family residence near a small college. Typical rent for a similar house in the area would be about $500 per month. I've focused on college kids and gotten outrageous rents (when compared to the area) ranging from $1000-$1250 over the years. This year, I'm only getting $800 as I just couldn't find tenants above that number for this school year.

The house will be paid off in June of 2026 and my plan was always to pay it off, use the increased cash flow from no mortgage to pay down other properties for a few years, and then sell it and 1031 into something closer to me in Cleveland. My neighbour, a fellow investor who runs a business from his home, wants to buy it from me.  He has offered $70K. $70K is a great offer for the area. If I put it on the market, I think I'd get somewhere between 60 and 70. 

So a few questions, Since I owe $42,000 on it (between both loans), how would the 1031 work and is now the right time? Should I wait until it's fully paid off before doing the 1031 or are there advantages to doing it sooner? If I'm able to execute a 1031, I know that the property purchased must be equal or higher value to what is sold. I assume that number would be the $70 that the "sale price" would be and not the roughly $20,000-25,000 that I would take home after paying off the loans and realtors? So I would therefore need to purchase a house worth more than $70,000 using the $20,000-25,000 as the down payment and reserves for the purchase. The other factor to consider is I would lose the HELOC on the house which I have used as my reserves should a large expense (like a roof or furnace) arise.

If anyone has done something similar, share your story.