How We Traded a $49k House for a $407k New Duplex with only $3k out-of-pocket
- Elenis M. Camargo
- 2 days ago
- 5 min read
In 2018, when my husband came across a $49k house for sale that he wanted to purchase, my first thought was, “What possible condition could it be in?” Surprisingly, the house was in solid condition and already tenant occupied. On top of that, the cap rate was 14% with an impressive cash-on-cash return of 32%. These outstanding numbers made the deal too good to pass up. We figured the property may not appreciate much, but at least we had a strong cash flow. To our surprise, the property appreciated significantly over the past eight years, which led us to the idea of selling and upgrading to a new construction property. That is how the 1031 Exchange opportunity came about for us. As with most people who have never completed a 1031 exchange, it seems complicated, tedious, and the strict IRS rules must be followed. Nevertheless, the opportunity that the 1031 provides is well worth the hassle. Follow along on how we upgraded from a $49k house to a $407k new construction duplex with less than $3k out-of-pocket.
What is a 1031 Exchange?
A 1031 exchange is a tax-deferred strategy that allows real estate investors to sell an investment property and reinvest the proceeds into another similar property without incurring immediate capital gains taxes. To take advantage of this tax strategy, you must follow strict IRS timing rules and use a 1031 exchange intermediary to hold the funds from your sale while making the purchase of the new investment. Since the 1031 exchange rules are beyond the scope of this article, I suggest you speak to a CPA and a 1031 exchange intermediary for more information on the exact rules you must follow.
The house we traded: Bunche Drive
We acquired a small three bedroom, one-bathroom single family home in 2018 for $49,000. We purchased it with a conventional loan with a 20% down payment. Our loan amount was roughly $39,200 with a monthly P&I payment of $235 (not including property taxes and insurance). The monthly rent was $1,035, so we had a solid monthly cash flow from this property.
Purchasing a 60-year-old property without any recent updates does come with its problems. Over the course of our ownership, we had to replace the HVAC system, complete one turnover, and handle many standard maintenance issues. Our bigger concerns were the 20-year-old roof and original plumbing that eventually would need to be replaced. By trading this property for a newer construction property, we would avoid those future capital expenditures.
According to Zillow’s Zestimate®, the home reached an estimated value of approximately $137,000 in early 2024. We listed it for sale for $125,000 in late January and sold it for $110,000 in April to a seasoned out-of-state investor who offered all cash, no financing contingency, no inspections, and no agent commission as they represented themselves.
The duplex we acquired: Pangola Drive
Before we got under contract for Bunche Drive, my husband Isaac found a local builder that had three duplexes listed for sale in a progressing area. The properties were built in 2024 and had been listed for sale for over 250 days. They sold several of these duplexes since 2024, but these were the last three that they had in inventory which gave us leverage to negotiate a better deal. They had the property listed for $412,000. The property was occupied with a monthly rent-roll of $2,504.
Once we got Bunche Drive under contract and we were confident that the deal was going to go through, we started negotiating on the duplex. Part of the sale listing included a free year of property management paid by the builder. We declined the property management service as we own a property management company in Jacksonville so we can manage it ourselves. This allowed us to use it in our negotiations as this would save the builder approximately $3,000 on property management fees.
Builders often partner with preferred lenders to make the purchase process more streamlined. In this case, the seller offered credits of 5.5% of the sales price paid towards buying down our loan points if their preferred lender was used to purchase the property. We decided to go with their lender with a DSCR loan to take advantage of that offer, which was approximately $22k in seller credits.
Lastly, because I am a licensed Florida real estate broker I asked for a sales commission since I am brokering the buyer’s side of the deal. Typically, commissions are 6% of the sales price with the seller’s agent receiving half of the commission and the buyer’s agent receiving the other half. In this case, the builder offered us the full 6% commission, which was amazing. Ultimately, we negotiated a purchase price of $406,900, and after applying the credits, commissions, and proceeds from Bunche Drive, we had to bring $2,490 to upgrade to a new-construction duplex in a growing neighborhood.
Most importantly, the 1031 exchange allowed us to defer approximately $13,000 in capital gains taxes by exchanging this into another property, versus pocketing the proceeds.
The deal numbers
Bunche Drive Sale
Bunche Drive Sale Price: $110,000
Current loan balance: $33,837
Closing costs and pro-rated rent: $2,997
Proceeds from sale sent to 1031 intermediary: $73,166
1031 intermediary fee: $1,000
Pangola Drive Duplex Acquisition
Pangola Drive Purchase Price: $406,900
Loan Amount: $316,000
Seller credit for buying down the points (5.5%): $22,379
Commission: $24,414
Pro-rated April rent: $1,332
Net 1031 Exchange Proceeds Applied: $72,166
Total Credits & Exchange Funds Applied: $120,291
Total Closing Costs: $31,881.68
Final amount due from us at closing: $2,490
When we acquired Bunche Drive eight years ago, we never imagined we would eventually trade a $49,000 house for a brand-new $406,900 duplex with less than $3,000 out-of-pocket at closing! This is exactly why real estate can be such a powerful wealth-building tool when you combine appreciation, leverage, strong negotiation, and tax strategies like the 1031 exchange. Not only did we avoid roughly $13,000 in capital gains taxes by rolling the proceeds into another investment property, but we also upgraded into a newer construction duplex with higher rents, less immediate maintenance concerns, and stronger long-term appreciation potential. Opportunities like this do not happen overnight. Bunche Drive cash flowed well for years and gave us the opportunity to slowly build equity and appreciation over time. By strategically using those gains instead of cashing out, we were able to significantly scale up our portfolio without having to bring a large amount of new money to the table. Remember that real estate investing requires a long-term mindset and patience to capture its true benefits.
This article is intended as a general overview and should not be construed as personalized financial advice. Before making any investment decisions, consult with a qualified financial advisor to assess your individual situation and develop a comprehensive retirement or investment strategy tailored to your needs and objectives.
