STR Predicament - Please Help!

[Ryan Elam]

Hey guys, 

I made a mistake and am looking for some advice. 

My wife and I bought 2 properties in the Joshua Tree area - one in 2021 and one in 2022. And while the first one started out great, there has been a huge slowdown this year and we are losing quite a bit of money each month. 

Here is a breakdown of the situation: 

- 2022 = $18k net profit 
- 2023 = -$26k loss between both properties so far (will likely lose between $35k - $50k in 2023)
- Tax Savings via Bonus Depreciation = $52k in tax savings combined ($20k from property #1 in 2021 & $32k from property #2 in 2022)

- Property #1 purchased for $350k + $85k in renos + furnishings = $435k total (2nd home mortgage - 30 yr fixed at 2.9%)
- Property #2 purchased for $475k + $83k in renos + furnishings = $558k total (2nd home mortgage - 30 yr fixed at 3.4%)

- Opened a HELOC ($90k) on property #1 to help pay for property #2.

We are getting appraisals done on each property next week to determine the current market value of each to see if it might make sense to sell. If I had to guess we'd make a slight profit ($30k - $50k) on property #1 and a loss on property #2 ($50k - $70k). 

While we don't want to sell, it only seems like the market is getting worse and it's causing a lot of stress to manage these properties at a loss each month. 

I've been thinking about potentially doing a 1031 exchange for 1 or both properties, but not sure where we would buy that would be cashflow positive and not thrilled about taking on a much higher interest rate. 

I feel like I'm out of my depth and with my limited RE investing knowledge, I would really appreciate any advice anyone is able to offer. 

Thank you!