Have four properties, what next?

Question

So I own about 1.4 million in real estate between four properties, single family homes. It seems like the next step would be to turn a little into a lot by starting to 10-31 exchange some of the earlier properties in my portfolio that have appreciated the most toward an apartment complex.

I've had a few people mention that this is a lot of work at least initially, but it seems like the next logical step. Otherwise, my options are to hold, sell and buy two single family homes with proceeds from each house, or sell and put the money in index funds.

I like the apartment complex because of economies of scale, and the fact that I could always move into a unit and "retire" while living off the proceeds of the rent.

Bill Exeter · Answer

You can also look at a Reverse 1031 Exchange. The Reverse 1031 Exchange allows you to take all the time that you need to locate suitable replacement property, buy and close on the new replacement property, and then you have 180 days to sell and close on your current relinquished property.

Reverse 1031 Exchanges are more complicated and have higher costs, but can eliminate most of the risk in a 1031 Exchange.

Jack B. · Answer

I'm open to either. Some of them I am not too keen on keeping due to age (75 years and counting) and the amount of maintenance they required compared to newer properties. That old house is my only paid in full house (my first primary residence). After doing a cash out refi, it's not worth it to keep the property due to the low ROI of the property once financed.

One thing I don't look forward to with either method is ending up with commercial loans with higher interest rates.

So one alternative is to just sit back now that the  machinery is in place and let my tenants pay off the mortgages while I sit back and let inflation do its thing and I go have fun until I'm a multi millionaire in 6 years (at the current rate).

James Haubrich · Answer

Is there a specific reason you'r thinking about the 1031 instead of just keeping the 4 sfr and cash out refinancing them to purchase the apartment building?

Christopher Gilbert · Answer

We did a 1031 exchange last year and traded one single family house for two, which worked out OK but due to the time constraints on the exchange I felt like we did not get as good of a deal as we would have liked and had to settle for what was available.

If you are selling one property and buying another in the same area I am not sure that the 1031 is all that great because you may sell in an up market but will also have to buy in one.  I recommend if you go the 1031 exchange route, sell your property and look at another area (city, state, etc.) and see if you can leverage your equity better.

Selling a high-dollar single family house may be able to get you multiple opportunities in another area and that is how you can build your cash flow faster.  If you want to go multifamily, you might be able to get one that is twice the number of units and probably a better cap rate as well.

Kevin Kroll · Answer

you could also look at doing a cash out refi or LOC and using the proceeds on the apartment complex. This would save you the ~10% costs associated with selling a SFR, and also a more predictable timeline.

Have four properties, what next?

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