Sold Florida STR - 1031 or Cash Out???

Question

Looking for advice on best strategy/next step following sale of a home we owned in Florida as an STR.

Background: Sold 3bed/3bth home, have approx $600k equity. Funds currently being held by QI.

Option 1: 1031 into another STR, target price $1.1-1.4m. Would want min 3 bed/3 bath, located in FL/TN/SC/NC/GA. Either close to water/beach, or in scenic/mountain area. Have always owned homes but would consider a condo with an amazing view or unique features. Familiar with FL and have been looking in Tampa area, Naples/Ft Myers, 30A, Space coast, and Jacksonville areas. Numbers in FL are not looking great with insurance/taxes/HOA fees/etc for cash flow but willing to focus more on just breaking even (or close to even) and having significant long term appreciation.

Option 2: take the cash, pay 20% long term capital gains and wait as market continues to dip for a prime buying opportunity.

Would greatly appreciate insight/advice from those much more experienced and knowledgeable than myself. Thanks in advance!

Travis Timmons · Answer

Rule #1 - never be a forced buyer or forced seller.

Give a 1031 a shot, but don't let the tax savings force you into something. There are SO many things worse than paying a big tax bill.

I know that the spreadsheet warriors may disagree, but there is some value in being very liquid sitting on a pile of cash/index funds/interest bearing investments. There is some added security; you can't buy groceries with equity. Personal finance is as much dopamine, serotonin, and cortisol as it is spreadsheets and ROI.

Adam Bartomeo · Answer

1031 exchange ALL DAY!

Tyler M. · Answer

I have found what I think is a good passive 1031 option where you can earn 15% and then get out in a year and 1031 into something else. It’s good if you want to go passive or just park your 1031 equity while you take your time and look for something (assuming you can’t find anything now).

Zach Edelman · Answer

Why would you not do the 1031 exchange option based on the way you outlined the scenario above (acquire an appreciating asset, defer taxes)? Also at 50% down you are going to get rates in likely the high 6's to low 7's currently on a 30 year loan.

Andrew Steffens · Answer

I have recently been working more buyers on the luxury end in Tampa lately and have a list of great potential properties.  Being on the higher end of things helps with less competition, CoC returns 8-15%+ definitely still more than possible!

AJ Wong · Answer

HI James, I appreciate option 2 being an option..plenty of examples of investors rushing to use their 1031X and the investment losing more than they 'saved.'

How was your STR experience? Luxury STR's can really perform exceptionally, I've heard St Augustine is a strong market, can't go wrong with anything Naples..Savannah is also a hot spot. A major component our luxury STR clients the moment are loan terms. Check in with @Joseph Chiofalo for a preferred jumbo lending program that's really improved investors incentive and cash flow.

Good luck!

James Thompson · Answer

@Ryan Cleary I tend to agree with your thoughts - the ease of management/no maintenance was why I was looking into the 3bed+ luxury condo market.I would prefer to get a STR in an area that we like to vacation a few times a year, using the revenue to subsidize the cost of ownership (which is why appreciation potential is more important to me than monthly cash flow).

Finding a newer luxury home that is walking distance to a nice beach in my price range has been challenging. Been finding a lot of older/smaller homes that either need a ton of rehab (which I don’t want to do right now), in a flood zone with crazy insurance costs, or far from a beach.

Dave Foster · Answer

@James Thompson I can think of $100,000 reasons you might want to reinvest and 1031 into a new property/properties. You might be better off purchasing multiple properties with the proceeds and give your self a greater potential for multiple streams of cash. later down the road you can do another 1031.  Or cash out refi into another attractive property you would want instead of losing all that tax and using only what's left of the proceeds to reinvest. Thats a steep price just to wait out an uncertain market.

Lisa Geiger · Answer

I have the same thing going on right now. In a condo that I am getting ready to sell and I am contemplating taking the cash vs 1031 Exchange. Still haven't made up my mind but here is what I can offer.

The market in Florida is what it is, but the HOA drag down I would try to stay away from. There is going to be a big shift in the market when Florida starts to force HOA's to have full reserves.

Don't limit yourself to 3 BR's, I believe the more bedrooms the higher the rental price so I try to use that when searching!

James Thompson · Answer

@Kerry Baird that’s funny, that property did come up in one of my searches last week!

This house does have potential but will need a lot of updates (and money), both in the immediate and long term future in order to make it what I am looking for. These updates kill the ROI in my calculations/projections.

Sold Florida STR - 1031 or Cash Out???

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