All Forum Posts by: Kevin Wheeler

I'm so new at this, so thanks for helping. My basic thought was that by using loans, you are able to get a much bigger property and get a better cash on cash return than you would if you bought a property without a loan using all cash.. while also building equity as the loan is paid off. Is this even true? And if it is, it would seem that once a loan gets closer to being paid off, you basically have a bunch of cash at your disposal to put into a down payment on another loan. Having a paid off loan is similar to buying a property with all cash. You would rather take that cash and use it as a down payment on a loan for a bigger property with a better cash on cash return. But you don't want to pay taxes when you do this, so you 1031. But as per Scott Wolf's comment, it sounds like you could just get a cash out refi and use that cash as a down payment for a loan on another property without having to sell your current property and 1031. This however would probably negatively affect your cash flow more than 1031ing. Or maybe there is some balance of not fully cashing out that achieves the same result. For some reason I had the idea in my mind that you could actually increase your cash flow by taking the money from a fully paid off property and using it to 1031 into something bigger, meanwhile gaining equity as well as you pay off this new loan.

Are there even any general rules of thumb, like by the the time you have your loan half paid off, it's probably a good idea to go ahead and 1031?

I'm new, but it seems to me that in general Real Estate doesn't make much sense without loans. It seems that by using your cash as a down payment on a loan, you are able to get a bigger property with better cash flow, while at the same time gaining equity as you pay off the loan. If this is the case, then there has to be a balance of how long you want to hold onto a property before cashing out and 1031ing into something bigger. The closer your loan is to being paid off, the more it makes sense to go ahead and sell and 1031 into something bigger. You don't want to do this too often though, because there are a lot of closing costs that take time to make up for. Are there any mathematical heuristics/guidelines for how often you should 1031? Of course it will depend on several variables like closing costs, quality of property, loan lengths, etc. Let's say the quality of property is equal for the sake of simplification. Thanks!