{"id":174859,"date":"2024-07-03T07:00:00","date_gmt":"2024-07-03T13:00:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=174859"},"modified":"2024-07-28T06:04:37","modified_gmt":"2024-07-28T12:04:37","slug":"1031-investor-journal-six","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-six","title":{"rendered":"My 1031 Exchange Property Is Listed. Here&#8217;s How I&#8217;m Managing the Clock."},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC3786225945\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">We have been busy. As we barrel toward our exciting <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-exchange\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">1031 exchange<\/span><\/a><span data-preserver-spaces=\"true\">, selling the Brooklyn condo we\u2019ve owned for 20 years and funneling the sale monies into a hopefully <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flowing<\/span><\/a><span data-preserver-spaces=\"true\"> investment opportunity, there are still more unknowns than knowns. Yes, even this far in the process. (Want to catch up? See <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">where we started<\/span><\/a><span data-preserver-spaces=\"true\">.)<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The good news? <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.compass.com\/listing\/197-spencer-street-unit-3b-brooklyn-ny-11205\/1581379408475747793\/?utm_medium=email&amp;utm_source=transactional&amp;utm_term=collections_share_action_email_listings_email&amp;utm_content=197%20Spencer%20Street,%20Unit%203B&amp;utm_campaign=7\/7\/17&amp;agent_id=5900eb30fcd4b75cedc6b169&amp;&amp;email_tracking=e30=&amp;deliverable_id=664d12654b217f0008f34f66&amp;deliverable_type=share_action_email_listings_v2&amp;deliverable_channel=email&amp;email_tracking=eyJkZWxpdmVyYWJsZUlkIjoiNjY0ZDEyNjU0YjIxN2YwMDA4ZjM0ZjY2IiwiZGVsaXZlcmFibGVUeXBlIjo3MSwiZGVsaXZlcmFibGVDaGFubmVsIjoxLCJyZWNpcGllbnRJbmRleCI6MSwic2VuZGVySWQiOiI1OTAwZWIzMGZjZDRiNzVjZWRjNmIxNjkifQ==\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Our condo<\/span><\/a><span data-preserver-spaces=\"true\"> is on the market! Better news, it\u2019s attracting interest, and we hope to be moving into contract shortly.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So what will we buy? Great (with emphasis) question.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">We\u2019ve learned a ton this past month about the kind of investment we <\/span><em><span data-preserver-spaces=\"true\">don\u2019t<\/span><\/em><span data-preserver-spaces=\"true\"> want to make. Just like anything else <\/span><span data-preserver-spaces=\"true\">in life<\/span><span data-preserver-spaces=\"true\">, <\/span><span data-preserver-spaces=\"true\">learning<\/span><span data-preserver-spaces=\"true\"> what you don\u2019t <\/span><span data-preserver-spaces=\"true\">want<\/span><span data-preserver-spaces=\"true\"> is just as important as understanding what you do.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Deep in the Heart of Texas\u2014or Not<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We identified a seemingly great target property in Sherman, Texas, <\/span><span data-preserver-spaces=\"true\">which is<\/span><span data-preserver-spaces=\"true\"> about an hour north of Dallas in the high-growth path-of-progress area along <\/span><span data-preserver-spaces=\"true\">Interstate<\/span><span data-preserver-spaces=\"true\"> 75 on the way up to Oklahoma. <\/span><span data-preserver-spaces=\"true\">There were two structures in the deal<\/span><span data-preserver-spaces=\"true\">, including 13 apartments\u2014a mix of studios, <\/span><span data-preserver-spaces=\"true\">one-<\/span><span data-preserver-spaces=\"true\">, and two-bedrooms. We did the <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-underwriting\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">underwriting<\/span><\/a><span data-preserver-spaces=\"true\">, looked at the full financials, and saw that the vacancy rate was low and that all tenants were on a year lease.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">With very little leverage, we would net about $4,000 <\/span><span data-preserver-spaces=\"true\">a month<\/span><span data-preserver-spaces=\"true\"> from day one (with room to grow). Solid!<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I knew I didn\u2019t want to buy anything I hadn\u2019t seen with my own eyes. (Yes, you can do this <\/span><span data-preserver-spaces=\"true\">sight<\/span><span data-preserver-spaces=\"true\"> unseen, but we didn\u2019t want to. <\/span><span data-preserver-spaces=\"true\">This<\/span><span data-preserver-spaces=\"true\"> is a million-dollar investment for us and our first big apartment building.) But we had a chicken-and-egg decision next: Do we go to Sherman and see the property first? Or get an inspection done first? Each task would set us back about $2,000.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">On<\/span><span data-preserver-spaces=\"true\"> the recommendation of our agent<\/span><span data-preserver-spaces=\"true\">, we visited first<\/span><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\"> In retrospect, this wasn\u2019t the right call, but we did have some <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/cackleandoink.com\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">amazing<\/span><span data-preserver-spaces=\"true\"> barbecue<\/span><\/a><span data-preserver-spaces=\"true\"> and a fun overnight in Texas.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Ultimately, what looked \u201cfine\u201d to us ended up with massive issues once the inspector weighed in\u2014from a failing roof to foundation issues to cracked sewer lines. (If you smell sewage, <\/span><span data-preserver-spaces=\"true\">make sure to<\/span><span data-preserver-spaces=\"true\"> spring for the sewer line check.)<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Although we <\/span><span data-preserver-spaces=\"true\">definitely<\/span><span data-preserver-spaces=\"true\"> could have negotiated the price down to cover these fixes, we decided they were too much for us to take on half a continent away, and we walked. Yes, it was a detour that ultimately cost us $4,000 and a few weeks\u2019 time, but it <\/span><span data-preserver-spaces=\"true\">was also one that<\/span><span data-preserver-spaces=\"true\"> taught us a ton.<\/span><span data-preserver-spaces=\"true\">&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Now What?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">While <\/span><span data-preserver-spaces=\"true\">we <\/span><span data-preserver-spaces=\"true\">were<\/span><span data-preserver-spaces=\"true\"> focused<\/span><span data-preserver-spaces=\"true\"> on Texas, we noted in our peripheral vision that cap rates on <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/triple-net-leases-commercial-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">triple net (NNN) leases<\/span><\/a><span data-preserver-spaces=\"true\"> were rising. If we targeted a monthly NOI of about $<\/span><span data-preserver-spaces=\"true\">5,000,<\/span><span data-preserver-spaces=\"true\"> after debt payments, we could cash flow about $4,000 to $4,500 with a property in the $1 million-$1.2 million range. That\u2019s pretty great for a completely passive investment.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">At first, we were <\/span><span data-preserver-spaces=\"true\">kind of<\/span><span data-preserver-spaces=\"true\"> leaning out on NNNs because we wanted to get experience actively <\/span><span data-preserver-spaces=\"true\">landlording<\/span><span data-preserver-spaces=\"true\">, but now<\/span><span data-preserver-spaces=\"true\"> that we\u2019ve been through the Sherman, Texas, experience, we understand that we don\u2019t <\/span><span data-preserver-spaces=\"true\">actually<\/span><span data-preserver-spaces=\"true\"> want to do <\/span><em><span data-preserver-spaces=\"true\">that much<\/span><\/em> <span data-preserver-spaces=\"true\">landlording<\/span><span data-preserver-spaces=\"true\">.<\/span><span data-preserver-spaces=\"true\">&nbsp; <\/span><span data-preserver-spaces=\"true\">And wouldn\u2019t it be nice in this pressured, time-constrained environment of the 1031 <\/span><span data-preserver-spaces=\"true\">to have some mailbox money<\/span><span data-preserver-spaces=\"true\">?<\/span><span data-preserver-spaces=\"true\"> Sure, we could probably get better returns for a more active investment. But a 6% cash-on-cash return seems pretty good to us.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Are Triple Net (NNN) Leases Again?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">NNN leases are commercial leases <\/span><span data-preserver-spaces=\"true\">where<\/span><span data-preserver-spaces=\"true\"> the tenant pays for insurance, taxes, and all maintenance and repairs. In our price range of&nbsp; $1 <\/span><span data-preserver-spaces=\"true\">million-$1.2<\/span><span data-preserver-spaces=\"true\"> million, these tend to be <\/span><span data-preserver-spaces=\"true\">fast food<\/span><span data-preserver-spaces=\"true\"> locations or retail like Family Dollar, etc.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The leases are <\/span><span data-preserver-spaces=\"true\">usually<\/span><span data-preserver-spaces=\"true\"> 20 years or so <\/span><span data-preserver-spaces=\"true\">in length<\/span><span data-preserver-spaces=\"true\">, and they <\/span><span data-preserver-spaces=\"true\">usually<\/span><span data-preserver-spaces=\"true\"> have built-in rent increases every few years. They operate on autopilot for most of the lease period. The danger comes at the end, when you are in the last five years of the <\/span><span data-preserver-spaces=\"true\">lease,<\/span><span data-preserver-spaces=\"true\"> when determining whether your tenant <\/span><span data-preserver-spaces=\"true\">is going to<\/span><span data-preserver-spaces=\"true\"> re-up. If not, it can take a while to find a new tenant (while you carry all the costs)&#8212;sometimes a couple of years.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">You also need to work <\/span><span data-preserver-spaces=\"true\">in<\/span><span data-preserver-spaces=\"true\"> a renovation budget for your new tenant (we understand this is around $100,000 to $150,000 in our range) to make the space their own. <\/span><span data-preserver-spaces=\"true\">Because of this vulnerability, <\/span><span data-preserver-spaces=\"true\">you often see landlords selling<\/span><span data-preserver-spaces=\"true\"> properties before the clock runs down to the five-year mark.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This month, we\u2019ll hopefully jump into a contract, and then the clock starts! <\/span><span data-preserver-spaces=\"true\">Got some<\/span><span data-preserver-spaces=\"true\"> advice for us at this stage of the game?<\/span><span data-preserver-spaces=\"true\"> What are your thoughts on NNN leases?&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong><span data-preserver-spaces=\"true\">Our 1031 Journey So Far:<\/span><\/strong><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">January: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Selling our Condo, the Beginning<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">February: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-two\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Getting the sell side situated<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">March: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-three\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Is a 1031 Exchange <\/span><span data-preserver-spaces=\"true\">Really<\/span><span data-preserver-spaces=\"true\"> Worth It?<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">April: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-four\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Finding the Best Deal in the Haystack<\/span><\/a><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">May: <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-five\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Final Stretch on the Sell Side<\/span><\/a><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">This 1031 diary will be a monthly series through 2024, chronicling our journey to a (hopefully) successful and profitable 1031 exchange, which kicked off in May. We\u2019ll share everything\u2014all the numbers, the analysis, the good decisions, what we wish we\u2019d done differently, the big mistakes (hopefully not many), and everything in between.&nbsp;<\/span><\/em><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">Have questions? Got advice? What are we missing? Share in the comments below!<\/span><\/em><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_18f73e92fb60dd5700069f529d8f6c2c\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_760591b49b27873c98e9d4dacd87e8ac\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Step #1: Use Agent Finder to match with top <em><strong>investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n<div id=button-custom-event-block_2e3dfade15790550e67ccc3694f37d51 class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/agent\/match\" x-on:click=\"window.analytics.track(&#039;Blog Block | B2C Marketplace Agent Finder&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-six&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find an Agent<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/Marketplace-Blog-Blocks-Agent-v3.png\" alt=\"investor friendly real estate agent\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a href=\"https:\/\/www.biggerpockets.com\/signup\" x-on:click=\"window.analytics.track(&#039;Blog Block | Acquisition | Free Membership Signup&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-six&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>After six months, Liz&#8217;s personal property is on the market and the 1031 exchange process is almost set.<\/p>\n","protected":false},"author":613680,"featured_media":169950,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7359,7119],"tags":[],"class_list":["post-174859","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1031-exchanges","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174859","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613680"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=174859"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/174859\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/169950"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=174859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=174859"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=174859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}