Nicole Shirvani experimented with rental real estate in her 20s — buying a condo in Toronto, where she’s from, and filling it with a long-term tenant — before taking a step back to focus on medical school.
“As a student, you’re not really making a lot of money, so I kind of put that to the side,” the psychiatrist told Business Insider. “After I finished training, my job gave me an opportunity to save some money, and I thought, ‘How can I invest in something that would appreciate and grow, and also allow me to save more for the future?'”
Real estate checked both boxes, providing both monthly cash flow and price appreciation.
Shirvani started looking for investment properties in southern Oregon, where she moved after getting her degree. In 2018, she closed on a duplex close to the hospital where she was working.
One of the units was already rented to a traveling nurse, while the other had just been vacated. She spent about six weeks upgrading the vacant unit before finding a new tenant. Once both units were filled, she said the cash-on-cash return was between 15% and 20%.
Using a 1031 exchange to sidestep capital gains taxes and scale her portfolio
In 2022, Shirvani accepted a job in Florida and decided to sell the Oregon duplex. Typically, when you sell an investment property for more than you paid for it, you’ll owe tax on the difference: either short-term capital-gains tax (if you held the property for a year or less) or long-term capital-gains tax (if you held the property for more than a year).
However, a 1031 exchange, also known as a “like-kind exchange,” is a strategy that allows investors to defer capital gains taxes on the sale by reinvesting the proceeds into a new, similar property that is of equal or greater value than the relinquished one.
There are a few rules to consider: 1031 exchanges are intended for investment properties, not primary homes; you need to hire a qualified intermediary to handle the transaction; and you have a limited amount of time to complete the exchange.
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As soon as you sell, the clock starts: You must identify your replacement property or properties (you can identify as many as three like-kind properties) in writing within 45 days of selling the first property.
Then, you must close on the replacement property within 180 days of your initial property sale.
Shirvani, who traded in her duplex for two properties in Florida — a beachside condo and a single-family home — said the timeline was “a little bit stressful, but the market was still fairly busy.”
She also started looking at exchange properties before listing the duplex to give herself plenty of time.
“Before you sell, try to have the replacement properties identified and line everything up,” she advised. “You don’t want to sell a house, not be able to find suitable properties, and be stuck, unable to invest that money into something.”
Shirvani, who has since added two short-term rentals in the Shenandoah Valley and a triplex in Lakeland, Florida, to her portfolio, plans to use the same strategy as she continues scaling.
While she doesn’t plan on fully retiring early, she’s using the rental income to boost her nest egg so she can eventually scale back at work. She’s also using the income stream to save for future expenses.
“It’s allowed me to save more money, be able to travel, and put money toward my daughter’s future,” she said. “And then, eventually, I’ll be able to leave that real estate for her.”