1031 or not? What’s the better bet?

Question

I have a general strategy question and I’d love to hear from those of you with way more experience than myself…

I have a single-family rental I want to pull my equity out of… I had planned to 1031 into a better market with better cash flow…but, the question is, what are you all doing? Are you thinking there are good odds of a market correction?

Would you 1031 into a new property that may well lose even more value? Or pay the capital gains and wait a little while and hope for a market correction?

I realize the longer you hold your cash in an inflationary time the less it’s worth… And I also understand interest rates could go up and it sounds like they probably will… But if the market corrects, I’d be able to purchase more after the correction… maybe? I guess that really depends on the market, doesn’t it?￼

Or maybe I should split it? Buy one or two properties￼ now and hold onto the rest of my cash for a bit?￼

Thoughts?

Dave Foster · Answer

@Bob Foglia, It's a personality choice.  I learned a hard lesson a long time ago that paper value isn't worth anything except to borrow more money.  In 08 a lot of us got hurt - a lot.  Know who didn't - everyone of my clients who didn't have to sell (low responsible debt or no debt).  They're paper worth went into the crapper for years but funny thing is they kept making as much money as ever because they just kept holding.

So monitor your debt closely and stress test a temporary drop in rents or the impact of a cash out refi.   Then refi or 1031 whichever is smarter.

And  don't wait to buy real estate.  Buy real estate and wait.