Hi -
I have one rental here in California that I just refinanced to purchase another in Texas. Now have one payment of $1600 with rents of $1200 and $800 for cash flow of $300. My plan is to sell California house in 6-9 months.
Would it be smart to use that money to purchase other rentals and have all cash flow? What pros and cons should I consider for paying in full or financing?
There seems to be so many of you with experience - all input will be appreciated!
– lyngarc
lyngarc,
If you plan on selling a rental property and using the proceeds to buy other property, you NEED to research doing a 1031 Tax Deferred Exchange!!! This is a must!
This exchange (named after the chapter in the Tax Code) allows you to defer any capital gains and “roll” them into the new properties.
It is a bit complicated, so read up on them first but it will save you a “butt-ton” (and that’s a lot) in capital gains!
If you are considering taking the money out and then buyin cash, you should rethink it…you get wealthy in REI by using OPM (other people’s money) and not tying up large amounts of capital cash.
Keith
Just remember that you may not qualify for the 1031 if you haven’t held the property long enough. Maybe your gain is worth the taxes.
There’s a lot of good resources. I have a list, but here’s one to get you started http://www.1031adviser.com/1031-articles.htm
Dee & Keith - thanks for your quick responses!
Yes, I’ve been trying to familiarize myself on 1031 but haven’t gone thru one yet. I will study the 1031advisor website, Dee! Fortunately, I do have a great tax guy who has been thru several and will walk me thru. I bought the CA house for appreciation, which doubled it’s value in two years, and the TX house for cash flow. Our market is mellowing out a little but I’m hoping for a litle more growth to compensate for the refi before I sell. Tax guy estimated capital gains tax at 10-12% - which I hope is low enough for me to use profits any way I need at the time of sale so I can use OPM as Keith points out.
–lyngarc