Real Estate: California/1031 exchange

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Question
I am in the process of selling farm land  and will be receiving approximately $950,000.  I would like to buy investment properties on the Central Coast but am vacillating between highly desirable communities like San Luis Obispo and more affordable areas like Santa Maria.  I intend to do a 1031 exchange and plan to hold the properties for at least 5 years, but I have 2 questions: do you think it's a good idea to take a capital gains hit now while they are still relatively low, or do the 1031 exchange and worry about them later?  Also, though I can get more for my money in the less expensive market, I know that the the more popular areas will hold their value better, be easier to liquidate if necessary, and will be easier to rent.  We work full time and do not really want another part time job, but would like the tax benefits and cash flow that rental units offer.  I do not own any rental units now, nor have I ever owned any.  Thanks for your time.

Answer
I can't advise you regarding paying capital gains taxes now or deferring them, you need to consult with a tax pro and take into consideration everything else you have going on.
Some investors are betting capital gains rates will go up, others say they will stay low.  I'm in escrow with a client on a $15M land sale that will close this month, rather than next year, because he thinks rates will being going up.  No way to tell.
With regard to where to re-invest, it's really dependent upon where you think the money will give you the greatest return and potential for profitable re-sale in the future.  If you don't intend to manage the units yourself, and don't feel the yearning to drive by them on a regular basis, go with where your money earns the best return.
I have a daughter in her senior year at CalPoly SLO and have looked at properties there.  Aside from student housing, which I seldom advise investing in, there are some nice areas that could provide a good return.  Santa Maria is certainly more affordable, but that's simply because there is less demand for housing.  Between the two, I'd look closer at SLO.

Real Estate: California

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John Souerbry

Expertise

I'm a independent real estate broker specializing in luxury homes, land, properties in probate or trust, and real estate investment in Northern California. My geographic focus is Silicon Valley, East Bay, and North Bay/Wine Country.

Experience

I have experience in buying/selling residential and commercial real estate, property management, financing, and preparation and sale of properties in probate or trust.

Organizations
National Association of REALTORS(R); California Association of REALTORS(R); Silicon Valley Association of REALTORS(R); Bay East Association of REALTORS(R)

Publications
My web site blog includes current market information and my "Real Estate Jargon" series that explains real estate industry terms.

Education/Credentials
BS, Business Administration MBA, Global Management

Past/Present Clients
I have worked with individuals holding one or two properties and with clients and estates holding over 40 properties of many different types (apartments, condos, single family homes, land). My latest transaction was a listing of 2.45 acres of land for development in Palo Alto, CA that sold for $15,580,000 (November 2012).

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