Good time to sell, bad time to buy?

[Tyler Batchelder]

My wife and I are putting one of our rentals up for sale due to a high HOA that keeps going up and has cut into our cash flow on the property. We would love to just 1031 into another single family rental but the market here is a bit ridiculous (Colorado). Is it time to eat capital gains, sit on cash and wait for the market to cool off a bit? We would love to hear some thoughts.

[James Carlson]

@Tyler Batchelder

I'm a realtor in Denver and Colorado Springs, so you definitely can't trust anything I say ... ;) That said ... 

Short story: You should still do the 1031. 

Longer story: There's little indication prices are going to slow or decline in the next few years. A few data points:

• Interest rates have risen a bit, but most experts don't think they'll continue to do so. Low rates equal high demand
• Millennials are a bigger cohort than Baby Boomers, and the first of the generation are just now reaching prime home-buying age. As that big number of Millennials continue to enter the market, it will keep demand high.
• Cost of raw materials and labor are through the roof, meaning new construction costs are going up.

Many of these factors would have to flip drastically. And there are other reasons why Colorado, specifically -- and Denver and Colorado Springs, specifically -- will be a target of this increased demand for at least the next few years.

Also, one of the benefits of selling now is to leverage that equity to increase your assets. Ex. We have a 1br condo in Denver that we bought in 2015. It has between $140-$150k of equity in it that's just sitting not working for us. We can take that $150k and use it as a 20% down payment on $750,000 of assets, be that one expensive unit, two smaller units, four units, whatever. 

Whatever you choose, I wish you luck!