What to do? 1031? Sell? continue to rent?

[Aubrey Ford]

Short story I have a SFH that I rented out and the tenant is essentially abandoning. They can no longer afford the rent due to a divorce. Now I am trying to decide to sell (take the long term cap gains hit) versus a 1031 exchange (never done one) or just relist it.

Current Mortgage: $75k, Appraised at $160k 4 months ago. Rents are at $1100/mo.   

Sell option: I could use the cash to help fund a house hack I am in the middle of. It would let me finish that 12+ months sooner.

relist option: it makes about 6% CoC but I am leaving a lot equity that I feel I should tap into. (if I refi and pull out the equity it makes the CoC negative for the next 3-5 yrs)

1031 option: sounds good, but I am concerned about finding the right property in the timeframe and my inexperience with this  creates risk.

[Alex Olson]

The 1031 exchange seems daunting but it is not. You have 45 days to find a replacement property and you can ID 3. You can start looking now and assume that returns you find on current properties for sale will be similar to what they are now with a few exceptions. 

[Dave Foster]

@Aubrey Ford. It's not uncommon for our clients to find the time frames a bit intimidating on their first 1031 exchange. Like @Alex Olson is saying you may start looking for potential replacements you like at any time before your 45 day identification time frame starts. 

You could even go under contract for a replacement property within the 45 day timeframe, if you find a property you really like. If you decide to sell, just be proactive and things should go a lot smoother for ya. We find that 95% of our exchanges are successful despite the time frames. 

There are no penalties for an incomplete exchange, You would then just pay the tax like normal. The fear of missing the 45 day time frame is almost always greater than the reality of it. 

[Matthew Irish-Jones]

Quote from @Aubrey Ford:

Short story I have a SFH that I rented out and the tenant is essentially abandoning. They can no longer afford the rent due to a divorce. Now I am trying to decide to sell (take the long term cap gains hit) versus a 1031 exchange (never done one) or just relist it.

Current Mortgage: $75k, Appraised at $160k 4 months ago. Rents are at $1100/mo.   

Sell option: I could use the cash to help fund a house hack I am in the middle of. It would let me finish that 12+ months sooner.

relist option: it makes about 6% CoC but I am leaving a lot equity that I feel I should tap into. (if I refi and pull out the equity it makes the CoC negative for the next 3-5 yrs)

1031 option: sounds good, but I am concerned about finding the right property in the timeframe and my inexperience with this  creates risk.

6% CoC is good, don't do anything. You are making money on appreciation and debt paydown by doing nothing. If you refinance you are going to lose a % of your money in refinance cost to the bank and (I assume), get a higher interest rate.

The way to get rich is to get more properties like this, not pay a bunch of fee's to tap into your equity.  Refinancing an investment is a good strategy to buy more homes and continue the snowball, but if you have a low fixed interest rate you would be crazy to refinance. 

Let the equity build!  Equity is King!

[George Gwynn]

I think 1031-exchanges are a good idea, but there are, of course, many factors that go into what may be best for you. My father-in-law almost always does 1031-exchanges when selling his properties.