To 1031 exchange and BRRRR or not?

[Kat Hughes]

Hi! 

Currently about to close on a multi unit at 228K.  Profits will be at around $100K.  Would like some feedback/opinions on what strategy to go with next and pros and cons of 1031 exchange.

PROS:

we won't be paying the capital gain taxes of about $20K

CONS:

Time line of 45 days to identify the next property(s) that needs to total 228K or more.  

Once 45 days have passed from the day of closing, identified properties cannot be changed.

We've never done the BRRRR method before and would like to start doing this strategy. The problem is, if we do 1031 exchange, we cannot use any of the profits towards rehab costs. It can only be used towards the purchase of properties that need to equal 228K or more. So, our idea is to use half of the funds to go towards a really well priced property so we can do the BRRRR method (con is we have to fork up the rehab costs), and then the remaining funds to go towards possibly a turn key property so we won't have a lot of up front repair costs and this property should bring us to the 228K mark. The reason why we would have to buy the 2nd property that is turn key is because we cannot have any all of a sudden cap ex emergencies or repair costs since we already have to use our funds to rehab the first property for Brrr strategy. We won't make as much money at the onset of the purchase (they always say you make your money when you buy) since it's turn key and usually sold at a fair market value but we also won't have the headaches of having to rehab it ourselves.

OR

We don't do the 1031 exchange, we pay the capital gain but we may have enough funds to do at least 2 BRRRRs with those funds and not have to fork up the rehab costs and also not have the stress of having to find properties that need to equal or pass the 228K mark. 

Any thoughts or suggestions?

Would appreciate the feedback! 

Thanks BP community! :)