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Updated over 3 years ago on . Most recent reply
1031 or Hold for Appreciation/Development? That Is the Question..
I have a rental home in Missoula, MT, and am having a hell of a time deciding whether to keep it or sell it. It was fully updated/remodeled in 2015, is ~3000 sq ft (old Victorian), it currently cash flows ~$400 per month, and I have about $250k of equity in it.
In theory, I could sell, pull out that equity, and reinvest in ~5 single family homes in the southeast (think Birmingham, Memphis, etc.) and increase that monthly cash flow to $1,400+ (on the conservative side).
That said, the home sits on THREE city lots and is more or less in downtown Missoula. If the home were in disrepair I'd tear it down and build townhomes because the lot is zoned for and could easily fit 4-5 units that would likely go for $650k+ each. And the location is honestly better for townhomes vs. a huge single family home, given its proximity to downtown. But I can't justify tearing it down right now given it's a perfectly lovely home.
There's also the option to build a garage in the back and put another rental unit over it. The zoning allows for it and there's more than enough room on the three lots.
Given all of this, I think I have four options...
1. Should I keep it and wait 5-10+ years until it makes more financial sense to develop the lot?
2. Should I sell it at (hopefully) what I believe is a reasonable market value, get the $250k out of it, and do a 1031 exchange?
3. Should I put it on the market and try to really push price? Kind of test the market and walk away if I don't get what I want, even if it's a bit aggressive? There have definitely been some homes selling for well over what'd be considered "reasonable." I could put it up for $850k+ and just see what happens?!
4. Should I build the garage and extra unit sooner rather than later?
What would y'all, the experts, do?? Any options I'm missing??
I don't need the cash flow, necessarily. I think I'm having the most trouble weighing the benefits of cash flow now vs. a potentially larger payout years from now. Halp!