{"id":172004,"date":"2024-05-20T12:24:25","date_gmt":"2024-05-20T18:24:25","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=172004"},"modified":"2024-05-20T12:25:16","modified_gmt":"2024-05-20T18:25:16","slug":"1031-investor-journal-five","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-five","title":{"rendered":"I’m in the Final Stretch of Selling My Brooklyn Condo as a 1031 Exchange\u2014Here’s How the Fifth Month Went"},"content":{"rendered":"\n

In the next few days, our Brooklyn, New York condo will hit the market, and we will begin the first half of our long-planned, much-anticipated, greatly agonized-over <\/span>1031 exchange<\/span><\/a>. When all is said and done, this transaction will catapult us from <\/span>cash flowing<\/span><\/a> $300\/month on $1 million in equity to (hopefully) $4,000 to $5,000 a month instead. <\/span><\/p>\n\n\n\n

If you are <\/span>just<\/span> joining our journey<\/span><\/a>, we are chronicling all the ups and downs, wins and fail\u2014um, \u201dlearning moments\u201d in our quest to get a much more favorable <\/span>return on our investment<\/span><\/a>.<\/span> <\/span><\/p>\n\n\n\n

This month, we head into the home stretch of <\/span>our \u201csell\u201d phase<\/span><\/a>. The tenants wrapped up their final month with us in April and <\/span>actually<\/span> just moved a few floors to another available apartment in the building (that\u2019s how <\/span>awesome<\/span> our place is!). We got the handyman in there to paint and polish earlier in the week, and today, the real estate team is taking pictures, which will <\/span>be virtually staged<\/span>. The live listing is imminent.<\/span><\/p>\n\n\n\n

On<\/span> the \u201ctarget property\u201d (buy) side<\/span>, we have been underwriting properties<\/span> until our fingers are sore.<\/span> <\/span>This<\/span> is where most of our energy and hours not sleeping at night have <\/span>been directed<\/span>. It\u2019s a steep learning curve. <\/span><\/p>\n\n\n\n

Here\u2019s what we\u2019ve learned over the last few weeks.<\/span><\/p>\n\n\n\n

Timing Is Everything<\/span><\/h2>\n\n\n\n

I am a planner, but there is only so much you can <\/span>actually<\/span> do ahead in this 1031 world. <\/span>Deals you like that come out days or weeks before you are on market will likely be snatched up<\/span> before you\u2019re ready. That\u2019s okay. It\u2019s all good practice, and you\u2019ve learned a ton about identifying good deals <\/span>in the process<\/span>. <\/span><\/p>\n\n\n\n

Not Every Seller Will Be Comfortable With a Sale Contingency<\/span><\/h2>\n\n\n\n

Sure, you can <\/span>try to<\/span> lock your target early by building a sale contingency into your contract, but <\/span>not everyone will be convinced<\/span>.<\/span> <\/span>You<\/span><\/em> know that a<\/span> condo in Brooklyn is <\/span>basically<\/span> a stack of gold bars, but sellers across the country may not have that same confidence or frame of reference.<\/span> <\/span><\/p>\n\n\n\n

The Power of the CMA<\/span><\/h2>\n\n\n\n

That\u2019s why you<\/span> will also need a <\/span>comparative market analysis<\/span><\/a> (CMA). <\/span>We learned what this <\/span>was<\/span> in the last month. Essentially this is a mini deck that your selling real estate agent can <\/span>work up<\/span> for you that shows the strategy behind your property sale, what you\u2019ll price it at, <\/span>comps to support it<\/span><\/a>, how quickly those comps went under contract, etc.<\/span> <\/span><\/p>\n\n\n\n

This<\/span> helps convince a seller in rural Texas that your sale contingency is a <\/span>pretty<\/span> safe bet.<\/span> Sometimes it works.<\/span><\/p>\n\n\n\n

Options Are Everywhere<\/span><\/h2>\n\n\n\n

If you\u2019re <\/span>just<\/span> aiming for a solid base hit, which we agreed was our goal here\u2014tight timing, the <\/span>biggest<\/span> investment of our lives, crazy interest rates, etc., all being complicating factors\u2014you will find lots out there.<\/span> Realizing this took a lot of the pressure off. <\/span><\/p>\n\n\n\n

We <\/span>need to<\/span> transition our earnings out of Brooklyn and into a good investment. That\u2019s the bar, and many deals fit this requirement. It\u2019s parking our money in a cash-flowing, mostly hands-off investment. We don\u2019t need to retire off this one deal.<\/span><\/p>\n\n\n\n

Check Underwriting, Then Check Again<\/span><\/h2>\n\n\n\n

I almost pulled the trigger on a deal I loved. The numbers looked great. <\/span>I had <\/span>gone over the inputs again and again<\/span> and checked them with the real estate agent.<\/span> <\/span><\/p>\n\n\n\n

Then I stared at the tax amount, and it seemed low. (Full disclosure that everything seems low to me, living in suburban New Jersey). I <\/span>checked it again<\/span>. <\/span>Lo and behold,<\/span> the number I had been using for the yearly bill was <\/span>actually<\/span> the <\/span>monthly <\/span><\/em>tax amount, which means the <\/span>correct yearly<\/span> amount was the number I had in my underwriting times<\/span> 12<\/span><\/em>. Whoops. The deal didn\u2019t quite pencil out as well after that. <\/span><\/p>\n\n\n\n

No one is going to rescue you from bad <\/span>underwriting<\/span><\/a>. I got lucky, but force yourself to check\u2014and check and check.<\/span><\/p>\n\n\n\n

Consider a Triple Net Lease<\/span><\/h2>\n\n\n\n

When <\/span>you\u2019re<\/span> thinking about the three properties <\/span>that<\/span> you need to identify within 45 days of closing, don’t forget to consider <\/span>triple net properties<\/span><\/a> (NNN).<\/span> These are <\/span>true<\/span> \u201cmailbox money\u201d investments, where you own the land and the building, but the tenant pays for taxes, insurance, roof, <\/span>repair\u2014the works<\/span>. <\/span><\/p>\n\n\n\n

These tenants are also usually on 10-to-20-year leases, <\/span>and they are<\/span> <\/span>usually<\/span> big, stable chains like fast food, grocery stores, auto part retail centers, and the like. <\/span>(I first learned about NNN properties on an episode of <\/span>Real Estate Rookies<\/span><\/a>, by the way<\/span>!) The returns can be more conservative, but the <\/span>sleep-though-the-night<\/span> peace of mind can make it worth it.<\/span><\/p>\n\n\n\n

Our 1031 Journey So Far:<\/span><\/strong><\/p>\n\n\n\n