Where/What would you invest with $300K in 1031 escrow money?

Question

Hi BP,

Looking for some advice from the BP community. We are a few weeks away from the sale of our NYC apartment. This will net us $300K profit that will have to be put into 1031 escrow to defer capital gains tax. I missed the 121 exclusion by 4 months (I know...). We are currently living in Richmond, VA. Ideally we get a multi family in Richmond and call it a day. I want to diversify our portfolio and possibly get a multi fam in Richmond and a STR in a vacation market. My question to you all is... WHAT WOULD YOU DO?

Bill B. · Answer

The $300k “profit” doesn’t matter. How much was the net sale? That’s the amount you have to purchase. (If you made $300k on a $2million sale, you need to buy a $2million dollar new deal and the advice will be much different than if you sold a $400k property and made $300k.) That also brings up another question. Are you prequalified for more than your net sale or are you going to owe taxes regardless? You’re going to want to have that new loan written in stone to make your deadlines.

Gregory Vajda · Answer

I was mainly focused on the Corolla area but have been working with a realtor who has a search set for me all the way down to Nags Head.

According to Air DNA the occupancy rates for all those locations are 60-70%.  I would assume there might be a heavier drop off in demand at the beach compared to elsewhere due to the huge amount of supply down there.  Please correct me if that is a flawed analysis.  How are you doing down there?

Gregory Vajda · Answer

There are a ton of vacation markets around you. I live in Virginia Beach, and I have owned in Wintergreen since 2019, and have had good success using it as a STR.  It stays rented basically year round and our family gets to take free vacations.

I am also in the same 1031 exchange situation (Closing 7/27) and looking to diversify into a different vacation market and have looked at the Lake Gaston area of NC, Outer Banks, and also the Northern Neck of VA.  All seem to be STR friendly and have good occupancy rates, it just seems the prices for the houses are more inflated for OBX, a little less so in Lake Gaston, and the least inflated on the Northern Neck.

Good luck on your search and if you want to bounce ideas off eachother, feel free to reach out.

Patrick Drury · Answer

@Jonathan SernaIf you're not able to invest locally or are not able to get the returns, you are looking for you should invest out of state. I would recommend looking in the Midwest. Columbus OH is a great place to start looking in the Midwest. It's a nice balance of cash flow and appreciation. Also, it has lots of job opportunities and population growth. I also live and invest locally here in Columbus.

Mike D'Arrigo · Answer

@Jonathan Serna the first thing I would do is start looking for a replacement property immediately. I don't know your market, but there's a real inventory shortage in most markets which is making it harder to do a 1031. You don't want to miss your 45 day identification period.

Eliott Elias · Answer

Killeen Texas

Jordan Scroggins · Answer

Hey @Jonathan Serna. This is exactly what I’m working on now! Small world. I’ve lived in Richmond, VA for about 5 years and love it! Price points aren’t too bad either. I’m a Realtor in the Greater Richmond area.

I would definitely look into a value add multi family in the city! There are large projects and small. If you want to get some good footing, maybe just live in a different multi unit every year. Buy the STR’s when you can.

Also, have you thought about doing this in Opportunity Zones here in Richmond, VA? They are great for tax benefits, and also for making some dough!

Scott Wolf · Answer

There is no timeline for the length of ownership for 121, just living there 2 of the last 5 years.  They could have bought 20 years ago and moved out 3 years and 4 months ago.

But either way, great job @Jonathan Serna.  Make sure you work with a great QI for the exchange who works you through the multiple ways to identify properties and start looking for exchange properties immediately.

Mike D'Arrigo · Answer

@Jonathan Serna whatever direction you go, move quickly if you're doing a 1031. You'll have 45 days to identify once you close on the NYC property. With inventory so tight in most markets, that's a challenge.

Where/What would you invest with $300K in 1031 escrow money?

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