Question: how to 1031 exchange duplexes in a competitive market.

[Bart J. Olson]

I have 2 duplexes in Everett, WA.  One duplex cash flows $1000 and the other about $700.  I bought both as owner occupied.  Im thinking I could probably sell both duplexes around $1 mi and net about $250-$300k to reinvest.

I got married had a child and moved South to Tacoma, WA to be closer to family where I purchased a home with a mortgage of $3250. 

I have total debt of about $85K-$100k and am wondering if selling one duplex to satisfy that debt and rolling the other duplex into a similar property is the best thing to do?  If I dont sell anything, my monthly expenses leave me a little too tight at the end of the month.

My main goal is to increase my cash flow with the money that I have to reinvest.  Reinvesting in MF (4 plex or more) would be ideal, but I run the risk of losing out to the competition that seems to be able to buy at the drop of a hat.  Then that leaves me with the risk of getting hit with the 1031 tax.

Are there other ideas on how to reinvest the money from a 1031 tax exchange to achieve that goal?  Investing out of state/other ventures?

Thank You!

[Michael Haas]

Sounds like you're considering selling cash flowing assets to 1. pay off debt (at historically low current interest rates) and 2. fund a more expensive lifestyle. Given your long term goal of increasing cash flow this doesn't sound wise. HELOC, REFI, or just hold and keep a tighter handle on your finances so your cash flow can fund the next deal. This is all assuming that the current duplexes are good assets, not a hot mess, and from your post it sounds like they are.

Before doing ANYTHING, pull up your loan amortization tables. Not enough investors talk about loan pay-down! Its not glamorous like cash-flow, but the fact of the matter is that the longer you hold these properties the more of your monthly payments are going to principle, and although you need to REFI, HELOC, or sell to access that cash it is still building your long term wealth. Investors with shiny object syndrome or an obsession with not leaving any cash in their deals sell and REFI too frequently IMO, and miss out on longer term benefits like loan pay-down.

As much as I love cash-flow, my young family and I became millionaires on loan pay-down and appreciation, not monthly cash flow, and its pretty easy to tap into that equity for future deals now that its grown significantly.

Good luck! I went to school in Tacoma, love it there. There's some great Multi Families that will be waiting for you once your ducks are in a row.