What would you do? 1031 or pay the taxes...

[Beth Chang]

My husband and I are somewhat new to REI and would love some additional opinions. We have a goal to reach 10 homes free and clear in the next 10-15 years. This year we purchased our first two - close to turn key - properties. They both were purchased around the $150k mark and are bringing in about $1350 in rent. We also own a condo in another city that we are currently trying to sell ($400 HOA fees are brutal, so renting it no longer makes sense). It will go for $235k, we purchased it for $140k. We are estimating a capital gains tax of somewhere in the field of $10k when all is said in done. We have the option to turn it into a 1031 exchange and purchase 2 more homes in our area at the $150k mark.

Here's the dilemma: in this market, we aren't quite hitting the 1% that we'd like to. We'd love to sit back and wait before buying a few more homes, but with a 1031 we'd be pressed to go ahead and buy. Do we just pay the cap gains tax so we aren't buying deals that we don't love? Or do we go ahead and put the money to work and avoid the tax, even though we aren't quite getting the deals we want?

We are actively looking for deals that we can add sweat equity/brrr, and will continue to do so. As you all probably already know, this market is competitive and we are concerned we won't find anything to fit our needs in the next 45 days.

Would love any seasoned knowledge from you all. Thanks!

[Basit Siddiqi]

@Beth Chang

If you plan to continue being in real estate, it seems like a 1031 is the way to go.

Capital gains tax is likely going to be in the $15,000 range. You likely have to also consider state income tax and depreciation recapture.

I would rather have that money be used as a downpayment towards another home than to pay it out in tax.