How would you invest $275K as a 1031 exchange?

* buy a bunch of small cash-flowing houses that total $275K
* buy one big thing for about $275K
* buy one big thing for more than $275K and get financing

My inclination is that I won't find financing b/c I have too many loans already - can't even refi what I have - even though my credit score is good and my work income would support it. So I'm leaning toward staying at $275K, though, if there is a good reason to, I'd consider pushing to $350K and trying to secure financing where I am at 20% LTV.

The second level of thinking is - what will I do in the future? If I 1031 into one thing now, I can 1031 into something bigger in the future. But if I buy, say, 5 houses, then I'm going to be 1031'ing in the future into other small fish things.

The third level of figuring out stuff is - what do I want to accomplish? I think that nationwide, there isn't going to be any run-up any time soon (5-10 years), so any sort of "speculative" play doesn't appeal to me. I think I just want good cash flow and to know that I will get say 3-5% growth a year over the long haul - though I may just as well plan on it being flat growth depending on what happens in the RE market nationwide.

I know it's a lot to consider, and I'm not set on any one plan as I've described. I'd like to hear from you experienced folks, what would you do with a $275K 1031 exchange right now?

Thanks in advance! 35 days left to identify. :-)

Alex

Edited: 06/26/2010 at 08:58AM

Robert Jenkins

Commercial Real Estate Agent · Encino - Los Angeles, California

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Jul 17 '09, 04:59 AM

Personally speaking i would spread that out through a few properties and add a little leverage into the mix. You'll have better appreciation spread out through multiple buildings, little more more security with a bigger number of tenants, better depreciation (infact i think you have to gain some leverage to actually take advantage of that) and if you're in different markets it helps so you have some diversity with how your properites appreciate. (Mike Oh will say don't listen to appreciation BS)

Then again i don't have this situation personally but i run these scenarios for clients a lot.

Edited: 06/26/2010 at 09:00AM

Dory Peters

Real Estate Investor · dc, Washington D.C.

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Jul 17 '09, 12:56 PM

Alex, you have another option: invest with a group of investors in a larger property (aka syndication). This way you can get into a larger property, and get a higher yield than you'd otherwise get on your money invested.

Edited: 06/26/2010 at 09:01AM

Alex Rearmice

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Jul 19 '09, 07:56 AM

Thanks for the reply. I'm leaning that way, too, toward 3-4 houses or such.

I've found a 4-plex here on Colorado for $115K that brings in $2,200 a month in rent and the tenants pay for electricity, water and gas, leaving just trash, maintenance, insurance, and $1,600 in property taxes for the landlord. I don't have the exact NOI on it yet, but it appears to be a good deal to get started with. I suppose I should post this elsewhere as a "is this a good deal?" question! I think it will be up to $2,400 a month in rents within 3 years.

I'm focusing in Colorado Springs, Indianapolis, Charlotte NC and Fort Lauderdale FL. If anyone has good contacts or knows of anything in those areas, I'm all ears.

Alex

Edited: 06/26/2010 at 09:02AM

Alex Rearmice

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Jul 19 '09, 07:58 AM

Good idea, I hadn't thought of that. I rec'd an email from someone along those lines already. The thing is, I would have to know it's going to close within 180 days, else, fall back on one of my other two of three choices - which may or may not be around. So I'm a bit wary of that option in terms of a 1031 exchange, though I do like the idea a lot.

Alex

Edited: 06/26/2010 at 09:02AM

Wayne Qualls

Commercial Real Estate Broker · Birmingham, Alabama

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Jul 27 '09, 01:32 AM

Alex,
Have you thought about investing in NNN Commercial properties? You do not have to qualify for the properties. The property qualifies on its own. Tenants pay expenses. All you have is cash flow minus debt service. Cha-Ching!! Give me a call if you want more info. 205-945-9877.
Wayne

Edited: 06/26/2010 at 09:07AM by Wayne Qualls

Jim Doine

Real Estate Investor · Myrtle creek , Oregon

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Aug 17 '09, 04:00 AM

Alex, your deadline must be near, have you been able to identify your replacement property? :D Jim

Edited: 06/26/2010 at 09:23AM

Alex Rearmice

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Aug 17 '09, 04:26 AM

Originally posted by Jim Doine

Alex, your deadline must be near, have you been able to identify your replacement property? :D Jim

Yep, my ID period just ended, and I put 5 houses and 1 condo in my list. Already got 2 houses under contract. So - obviously - I went the SFH route, though I did evaluate several apartment buildings.

Thanks to everyone for the input.

Edited: 06/26/2010 at 09:23AM