1031 Exchange or Cash Out Refi

[Long Nguyen]

Hello BP community!

I own a 4 plex in the LA area. Trying to decide if I should sell it and do a 1031 exchange for a 5+ unit or do a cash out refi take that cash and go in on a 5+ unit with a partner. I'm hesitant to do the 1031 exchange because of the time constraint of having to find a replacement property. With the cash out refi the interest rate will be 1% higher than my current rate but I should be able to cover the PITI with current rent.

[Dave Foster]

@Long Nguyen, One option, depending on the nature of your relationship with the "partner" would be to locate and have them purchase the 5 unit.  Once you've got that done (the most difficult job), you sell your old property and 1031 to purchase 50% of the tenant in common interest of the new 5 unit from the partner.  Purchase it at cost and they would not have a taxable event either.

And with a little massaging they can get the first loan without a prepay penalty.  So your 1031 proceeds simply pay down the existing loan.