I maybe just lost 30k

[James L.]

Hey everyone, I need advice!! So I identified a four plex for my 1031 exchange and then put it under contract. This will be my fourth property but the appraisal came back very low. I have seen several sell in that neighborhood in the 365k-375k range in the past 9 months. I got it locked up for 350k, well appraisal came back at 320k. I guess the others ones were all cash purchased and the appraiser won't use them. So at this point it's either come out of pocket 30k to make it happen or move on but the other properties I identified have sold but one and it's not enough to cover my tax basis. And will be out 20k to the tax man.

[Michael Lucero]

Well with the first option you're not really losing any hard/real money upfront, it's only on paper. Yes, you may not have equity (which is something you obviously should always strive to have in a purchase), but you also don't have to pay 20k or whatever in taxes, so you're only out 10k. Furthermore, if the fourplex cash flows, it may not be that bad of a route to take. The only thing that sucks about buying possibly above market is that RE has been so hot lately it would be hard to see big appreciation upside to make up that assumed 30k gap. On the other hand, if you don't take the deal, you're actually out up to 20k in taxes instantly in real hard cash, which hurts more than an on paper loss of 10k on the first property. The other property sounds pretty good, not amazing, but renting it out for 1400 that cost 140k is not that bad. I don't see how you don't cash flow from something like that.