So here’s the situation:
Currently live in a 2 bd, 1 bath, <900 sq ft house in Southern CA. Just had a 2nd child, and we’re bursting at the seams. We need at least another bedroom and another 3/4 bath, plus a bonus room (wife does crafts, so needs the workspace).
Property is worth about $615k according to comps, and we owe about $188k. We also own a rental that is worth about $415k, and we owe about $285k on that. Thinking about selling and using the equity to help finance our new home. (Yes, I know about the capital gains tax. Just not sure how else to do this.)
Buying a new home to add the desired bed and bath would cost about $650k-$710k in this area. The thing that kills us is the increase in property tax, which would effectively double.
Another thought is to add on, but with the kids, this isn’t a very appealing idea. Also, we’d really lose any financial gain/advantage of having a rental. So a final thought is to build a duplex (we’re on an R2 lot) in our backyard and rent out the front, which would give us the flexibility of building something that supplies our current needs, as well as allows us the advantage of still having a rental.
So then the thought is to use the equity from the rental and use it on the future rental here. Does that qualify under 1031 exchange laws? We’d then get a construction loan to build the duplex in the back, and then refi the whole property when all is said and done.
Any other creative ideas on how to do this?
Thanks for the input,
Erik