Analysis Paralysis - Upgrading from SFH to MF Commercial

[Brandon Beaudoin]

Happy Sunday BP!

I need some feedback from the community here, an intervention of sorts.  I'm on the fence here regarding some options that I have so I'd like to lay my position on the table and get some feedback from the general community in the hopes that it can help guide my decision moving forward.  I appreciate any/all advice.

Current Position

Primary Residence (Southern CA)- Between $100-150k equity 

1. - Sept will be one year owned, will re-appraise since we've improved the land, some of the interior and there's been fairly substantial appreciation in the one year)

2 SFH Listed for Sale (MD and Northern VA) - Anticipate net profit $110-140k range (not bad for having only owned for 5 and 6 years and living in it for 1 year each)

- Combined Total Sales Price - $850-880k

- I expect to close mid-late Sept on NOVA property and no later than mid-Oct for MD property

1 SFH in Northern MI - Has ~$30k equity

- no plans to sell, may tap equity in near future for rehab and a cash out refi to invest elsewhere

Here are the options I'm looking at:

1) Use the profits to pay off some "bad" debt (some of the debt was for a $80k landscaping project on our 1/2 acre bare yard primary residence and the other was to do some rehab to our MD home to make market ready for quick sell so not bad, per se). Set aside ~10% for capital gains (both primary residence-turned-rentals were due to job changes greater than 50m away at just over the 1 year mark). Rate would be ~10.25% based on the combined interest rate of the debt and we'd increase our cash flows ~$1500 a month. This will likely be my wife's preferred option (low risk, instant returns, increases available credit, lowers our DTI, etc.)

2) Put the proceeds of both properties into 1031 exchanges and trade up. That would mean I'm looking at MF commercial properties in the ~$900k range if I go solo (preferred) based upon the projected combined sales price. I can use the net gain from the East Coast SFH sales and then either use a LOC on current property or tap into 401k for the remainder to come up with the 20-25% down payment. I've found some pretty good properties in the Midwest (Columbus/St. Louis/Kalamazoo areas) that have anywhere from 12 doors on up and around 8-10% cap, some stabilized (preferred) and some approaching stabilization (at least as far as the listings go). I prefer more doors. This is my preferred route because factoring in financing, set asides for capex etc I can net at least $1500/month (really $3000 but I'll likely set aside up to 50% depending on the area/condition/risk)

If I go with option 1 above I plan to tap into equity in my primary residence to do something similar with option 2.  I won't have to rely on 1031 timelines and can set my own price point based upon a) how much my primary residence appraises for (i.e. equity stake) and b) what kind of deal makes the most sense for us at the time and on our own timeline.

In all I expect to pay no more than ~$12k in capital gains taxes but I'd like to pay $0 and trade up to increase my cash flows with the intent to hold for 7-10 years to take advantage of these great rates.  I should also note that next year we plan to move out of our primary residence and rent that out so we will still have at least 2 rental properties the help us accumulate wealth so I won't be completely out of the I.D.E.A.L. market :)

Thoughts?  Considerations?  Sanity check?