One of my investor agents has an investor with 1031 cash to buy with, said agent thinks he can get me a VERY tempting offer. I bought the home with a hard money loan 2016, did a pain staking 15 month remodel, refinanced to a commercial loan last October. It's cash flowing about $400/month after I pay myself management fees. The offer would net about $160k cash!

I intended to refinance in October to get into a 30 yr fixed which should double the cash flow. I was going hold this home forever, but I also need to buy/ build a commercial space for my gym to move into. I am working to syndicate that deal but I could easily 1031 into that building and avoid the capital gains.

Alternatively, I can refi in Oct and pull out 80%, still own the property and still have some cash for skin in the game on the commercial space. Cash flow would be wiped out, but mortgage would still be met and the commercial space would more than make up for the lost cash flow once filled. Also, this sub-market is still expected to appreciate further!

It's my first deal. My only deal right now. I love this home but damn that's a BIG offer and could make my commercial deal that much easier.

What else do I need to think about?

sell

I agree. Sell and secure your new business

Refi, double your cash flow and syndicate/promote into your new deal. Diversify your cash flow and have multiple deals.

380sl said:

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Refi, double your cash flow and syndicate/promote into your new deal. Diversify your cash flow and have multiple deals.

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This was my initial thought, I mean I can raise the money for the building so why sell my assets until I need to. Damn dollar signs look tempting but I have to remember I can access that equity over and over with refi. Thanks APT, Steve and 380sl for commenting, I probably should have just slept on it before posting.

What I should try and do is get that dudes 1031 money into my commercial venture!

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What I should try and do is get that dudes 1031 money into my commercial venture!

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mwp02ag said:

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380sl said:

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What I should try and do is get that dudes 1031 money into my commercial venture!

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No, you dont want to do this, because he has to be a Tenant-in-Common owner of the property, which gives him more control than you will want, he can't buy partnership shares with 1031 money. Plus, I doubt he has the timeframe to wait on your deal, 1031 transactions have short fuses.

Great points for sure. I recently learned about tenant in common.

Beware the Texags echo chamber, everyone on this thread is full of sh-t, because you can't answer your question without knowing your basis in the original property and what other liquidity/cash flow sources you have. Is your "cash flow" a net number? Does it include a reserve for property taxes, insurance, repairs, etc? If you have to replace an AC, are you in a position to do that?

Also, need to know your original and new loan terms on the triplex. Stretching out your payments over 30-years creates excess cash flow after Debt Service by slowing the amortization, but if your rate stays the same, then might be worse off because you've greatly increased your interest expense. If you arent reinvesting the extra $400 quickly/efficiently, then you may lose a lot of the real benefit of it.

Continuing to try to refinance equity out of the same property is not a sustainable model, so dont plan on getting more money out of the triplex than what you initially get. The other problem from a lender's perspective is that you are just increasing your debt load to create liquidity, in the commercial underwriter's view its almost like a zero sum.

One suggestion might be to 1031 all of that profit into the new building, just dont plan on getting it back out to reuse on future projects.

Another thought is that you probably qualify for an SBA 504 loan for the new property, so you may not need the additional equity to get it done.

Just some thoughts for you.

I would never walk away from 160k net vs 400-800/month (plus management fees or whatever yourE taking) unless you see huge appreciation in the future.

Exactly: take the money, f-ck all the ROI bs. Cash is king.

evestor1 said:

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I would never walk away from 160k net vs 400-800/month (plus management fees or whatever yourE taking) unless you see huge appreciation in the future.

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Yes we are told that this sub market is still expected to greatly appreciate. It's right smack in the middle of the path of progress of the latest Pearl area expansion.

That, per the agent with the offer, is why California 1031 money is looking to come here. It's not looking for cash flow as much as tax shelter and appreciation.