Tough decision. Sold some properties, others no mortgage

[Kenny M.]

I've been selling off some unprofitable properties, but I made up for it with the sale. Netted around 200k all-in-all. I didn't do a 1031 exchange as I have so many carry over losses from my new construction, it really didn't matter. I may be selling another four buildings which I would have to do a 1031 since the gain would be around a 60% profit. However, I have three other properties, new construction, which I built with grants and tax abatement credits I own free and clear (it's nice to be 100% debt free. Also own my home as I just paid of the mortgage on that as well). The three properties are worth around 2.1m. On one hand, I am happy to be debt free. I have income of around 30k a month coming in from my current portfolio. However, on the other hand, I feel I can get some great deals with the equity sitting in the new construction properties. I can also lock in a 3.75% rate for 10 years, with 3 years interest only. I just am concerned with two issues. One, paying high prices for top of the market 5+ unit multi-families. Two, the impending recession coming within the next year or so.

 
Looking for strategic advice on how to proceed from some vets who know more than me.

[Dave Foster]

@Kenny M. - enviable position.  Some would say to sell and forgo the 1031 to keep your powder dry for bargain hunting in a correction.  The problem with that of course is that you have to wait for an event that may not happen soon or at all.  The worst thing in the world would be to sell and pay 20% off the top and then buy back in a market that simply stagnated for a number of years.  You just lost 20%.  

Of course those folks who sold and went into cash in 2007 because they knew exactly what was coming and were all pre-investors in "The Big Short" did substantially better and the 20% they paid in tax is nothing compared to having cash in an 80% depressed market.

But can you know???

One recommendation on the 1031 side would be to continue to look for your bargains and when one pops up that is too good to pass you purchase it using a reverse exchange.  

In a reverse exchange the QI takes title not you.  So you can take up to 6 months to sell your old properties now and 1031 exchange them into the property the QI is holding.  

That way you don't pay tax on the gain of the sale of your old properties.  

You get to purchase the right property when it comes along.  

You lock in appreciation on the new property.  You get to keep appreciation going on the old properties for a time.  

And for that time you also get to double dip income and tax benefits on both the old and new properties.