1031 or sit on that equity.

[Matt Ridenour]

Hi everyone.  Looking forward to some discussion on this question, so thank you in advance if you have time to weigh in.

I have a rental home with a fair bit of equity stored in it, with a non-performing tenant.  Bought it for 115 and rehabbed it at the beginning of covid.  Mortgage is for 115k, and the value is 320k or so now.  

Once the tenant is removed (should be about 30 days from now) we can either sell it and 1031 that 170k (after fees, etc.) or we can rent it again and cash flow about 500 per month.  It's in great shape as it was just rehabbed and won't need any cap ex for the next several years. The problem is the trapped equity.  I'd love to recapture that equity, but rates are high and I've had trouble making it make sense financially.  It is nice to have an asset with such a low debt/value ratio.  

On the other end of this, I have 4 vacant parcels waiting to be developed.  Does anybody know if I can use those 1031 funds to develop a new rental?

Thanks for any input here!

[Dave Foster]

@Matt Ridenour, Unfortunately you can't exchange into improvements on land you already own. You could keep that property and generate the rent. Your IRR on that is probably over 10%. Then refi and take that cash to develop the land. You may not get to do all at once but you can domino them one at a time.