Evaluating the right time to sell NYC real estate

[Lyle Cooper]

I have a condo in Manhattan that I rent out.  My R/E agent has been pushing me to sell the property b/c he says the market is hot, rates are low, and demand is high.

They suggested an ask price of 2.7mm.  I rent the place for $10,500/mo, and I net $1700/month after all expenses (including 3k/mo. of principal on my mortgage).  From a cap rate perspective, its a terrible investment.

I bought the place many years ago.  If I were to sell, I'd walk away with 1.3mm after commission, taxes, lawyers, etc.

A little background on me: I don't have a job.  I'm renovating a 3 family building in the area.  I occupy one unit.  I had one tenant but they left during covid.  So the property isn't making me money right now.

If I were to sell I'd incur a decent sized tax bill.  I'd like to 1031 exchange it, but I'm so swamped with my 3-family renovation project.  If I were to 1031 exchange it, it would be for a turnkey investment(s).  The only problem is I doubt the bank will give me a loan, b/c I don't have a regular source of income.  My thought process is wait until the my 3-family building is cash-flowing  and then sell the condo.  At that point, I think the bank will lend me money for a 1031 exchange.

Any advise or suggestions are welcome.  Thanks

[Dave Foster]

@Lyle Cooper, Much depends on your adjusted cost basis in the property (your original cost plus capitalized improvements minus depreciation).  If that number is near 0 because of how long you've owned it there is the option of a partial exchange that would mitigate at least some of the tax.

If your basis is 0 (just for illustration purposes) then when you sell there is a potential gain of 2.7 mil - That's a tax of maybe $600 - $700K.  If you did a 1031 exchange and only bought property with the cash (1.3 mil) you would halve that tax.  

So it doesn't have to be an either or choice to have benefit for you.