What is the next step?

[Brittany Fife]

I am under contract for my first duplex. I own a single family home right now. The loan for the duplex is FHA with 3.5% down. I am wondering when I would be able to purchase another multifamily. People say you can't have two FHA loans with 3.5% down. I wanted to get the ball rolling faster than this. I see now, when I am two weeks away from the closing, that I could have bought a 4plex instead of a duplex and be making more money. Everyone says that it's good to start off slow in real estate in case I get a tenant that doesn't pay and then I can afford my bills but I feel like this will be slowing my progress and then I feel like it would take three years to buy another house. I was hoping for the turnaround to be quicker. What should I do? Can I get out of the duplex deal and pursue a 4plex or should I just stick it out and wait until I have enough equity and then get a 4plex.

[Bill Exeter]

Hi Brittany,

The 1031 Exchange allows you to sell a property that you have been holding for rental, investment or business use and defer the payment of your capital gain and depreciation recapture taxes by reinvesting in another rental, investment or business use property. It is a tax deferral strategy that helps you trade up and build your portfolio (wealth). You could sell your SFR or your duplex in the future and trade into a fourplex (or larger) investment property without paying taxes on your taxable gains.

The answer to your other question regarding getting out of the duplex will depend on what is contained in your contract.  You are likely too far along in the process to be able to get out without incurring legal problems with the seller.  I would have a real estate attorney review your contract and related documents to see if you can legally get out if you really want to do that. 

Or, you could complete the purchase and hold the property as a rental property and then sell and do a 1031 Exchange into a new and larger property when you find one.  You will have people tell you that you can not sell until after 12 months, but if you find a larger property that is a better investment for you and allows you to increase your investment and put you in a better financial position you can sell and 1031 Exchange sooner since you have a valid and good business and economic reasons for selling quicker and completing a 1031 Exchange.  The key is your intent to hold for rental (and not hold for sale like flipping/rehabbing).