When to do a 1031 exchange

[Stephanie Peterson]

Hello All,

I have a rental property (cabin) that does well, but it has some overhead that I want to get away from. HOA fees, propane fees and the location could be better. This house is also at the point that it needs upgrades. I am not against upgrades but is it better to invest 30k back in or 1031 up? With rates being higher I will lose cash flow but I can refi if rates drop again?

I have about 300K in equity if I do a 1031. I want to buy a newer property with a bit better location, no 4,000 a year HOA and no 3,000 year propane bill lol

What do you think? I ran numbers and my cash flow is reduced because of interest but in the longer game I think I could take advantage of the equity..........

What would you do?

Thanks so much!

Stephanie 

[Dave Foster]

@Stephanie Peterson, those are great analysis points.  The cute phrase running around BP is "Date the rate and marry the property".  Interest rates will go up and down.  A property will not change.  If you have a good "why" to sell this one then that is probably the right thing to do.  

In your case you've got a couple - looming cap ex, potential better cash flow with a better rental profile, and even better cash flow in a later refinance. $7K a year to dump an HOA and get rid of a propane bill sounds like a winner by itself!!!