Multifamily 1031 exchange into new market

[Mark Soreco]

Have a multifamily property that's appreciated quite a bit and cash flowing well, very low LTV at this point, and am considering a 1031 exchange for one or two other multifamily in another market to increase return on equity. Looking for good cash flow, growing but not speculative secondary market, good working class areas with low crime. Open to other ideas though as well.

Should be net about $600k from the sale.  I'm currently getting around $2800-3200 monthly cash flow and would need to get at least that from the new property, if needed could put down payment higher than the standard 20-25%.  Considering IN, SD, AL, KS, SC, or other markets.

Anyone have suggestions of areas to check out, with a good commercial agent and outstanding property management recommendation?  I'm in CA so would be nice to keep travel distance reasonable but longer distance would not be a deal breaker.

[Sandy Hu]

Quote from @Mark Soreco:

Quote from @Sandy Hu:

$2,800–3,200/mo is very achievable, but I’d actually view that as a conservative target in some Midwest secondary markets if the deal is structured well.

For example, I recently worked on a West Michigan duplex that closed around $585k, renting at $2,300 per unit (~$4,600/mo gross). With standard Midwest expense assumptions and professional management, net cash flow still pencils out solidly without aggressive underwriting.

The bigger drivers I’ve seen are:

• submarket selection (working-class, low-crime pockets),
• realistic taxes/insurance,
• and having boots-on-the-ground management you trust.

For a ~$600k exchange, I’d be looking at small multifamily or strong duplexes where you can preserve cash flow while improving return on equity, rather than forcing higher leverage.

Happy to share what’s worked (and what hasn’t) if helpful.

Hi Sandy, I’d be interested in seeing some examples of deals in MI that were structured well.  How do MI markets like Grand Rapids compare with other popular midwest markets such as Columbus OH and Kansas City?

Great question. I’ll try to keep this practical rather than theoretical.

Grand Rapids vs Columbus vs Kansas City tends to come down to a few trade-offs I’ve seen in real deals:

Grand Rapids, MI

• Generally lower entry pricing relative to rent than Columbus/KC

• Strong blue-collar + healthcare + manufacturing employment base

• Taxes are higher than some Midwest markets, but insurance and maintenance tend to be more predictable

• I’ve seen solid Class B/B+ duplexes and small multis where cash flow holds up even with conservative leverage

• Less institutional competition than Columbus, which helps buyers not get bid up as aggressively

Columbus, OH

• Strong population and job growth, but that’s widely known now

• Pricing has compressed faster, so you often need either more leverage or tighter underwriting to hit the same cash flow targets

• Still a great market, just harder to find deals that truly improve return on equity without stretching

Kansas City

• Good balance of scale and liquidity

• More investor-friendly taxes, but heavier competition in the better submarkets

• I tend to see better results here for investors comfortable with larger multifamily rather than small 2–4 unit properties

For a ~$600k exchange where the goal is preserve cash flow + improve ROE, I’ve found West Michigan works well when:

• you stay disciplined on submarket (working-class, low-crime pockets),

• underwrite expenses realistically,

• and have local management in place from day one.

Happy to share more specific deal examples if helpful — a lot of it comes down to where in each metro you’re buying, not just the city name.