Seeking a 1031 Exchange Opportunity north of Boston

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Seeking a 1031 Exchange Opportunity north of Boston

Jordan Crumley
Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes

I am in the process of selling 4 condo units in Somerville. I will have net proceeds of ~$1.7MM, and I am looking to do a 1031 exchange. I wanted to reach out to the group to see if anyone had any idea of new markets I should explore in the Boston area? I currently own rentals in Everett and Somerville, but the current pricing doesn't make any sort of sense from a leveraged cash-on-cash return (cap rates are super low). So I am looking for a new market to look at that has better cash flow and higher cap rates. Any advice would be appreciated. 

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Russell BrazilBusiness Member
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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@Jordan Crumley Im actually not a big fan of Chelsea, but that is probably because I am originally from there, so it is hard for me to see the positives that other people see. On the flip side of that I live in the DC area, and I find many of the locals do not see the positive attributes of the marginal areas here while I can. So sometimes being an outsider can help with the clarity in that.

The Soldiers Home area of Chelsea is more desirable. Rents are not necessarily higher there, but property values will be...so on a cash flow basis that may not make the most sense.

If I were going to buy there, I might consider a small brick apartment building, there are several around town (of course timing it to when an owner might sell will be hard). I took a serious look a few years ago at buying a brick apartment building at the corner of Brodway and Webster ave. I kind of regret not buying it. Id also give consideration to 3 unit brick brownstones near the water front and entrance to the Tobin Bridge.

Chelsea has plenty of negatives, which I am sure you are familiar with....but on the other hand 30 years ago Charlestown and Somerville were giant s**tholes as well just like Chelsea. At some point it has to turn around right? Of course Ive been hearing that my entire life.

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  • Russell BrazilBusiness Member
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    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    Might get a better cash on cash in Chelsea than you would in Everett or Somerville. Not aot better, but probably a few percent better.

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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    Thanks, Russell. Any specific parts of Chelsea that you like better than others? I've looked in Chelsea for a couple of years now, but I haven't gotten to a point where I can get myself to really try to get a deal done. 

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    @Jordan Crumley Im actually not a big fan of Chelsea, but that is probably because I am originally from there, so it is hard for me to see the positives that other people see. On the flip side of that I live in the DC area, and I find many of the locals do not see the positive attributes of the marginal areas here while I can. So sometimes being an outsider can help with the clarity in that.

    The Soldiers Home area of Chelsea is more desirable. Rents are not necessarily higher there, but property values will be...so on a cash flow basis that may not make the most sense.

    If I were going to buy there, I might consider a small brick apartment building, there are several around town (of course timing it to when an owner might sell will be hard). I took a serious look a few years ago at buying a brick apartment building at the corner of Brodway and Webster ave. I kind of regret not buying it. Id also give consideration to 3 unit brick brownstones near the water front and entrance to the Tobin Bridge.

    Chelsea has plenty of negatives, which I am sure you are familiar with....but on the other hand 30 years ago Charlestown and Somerville were giant s**tholes as well just like Chelsea. At some point it has to turn around right? Of course Ive been hearing that my entire life.

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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    Thanks, Russ! Super helpful context, and I hear you about a brick building. If the market weren't so hot up here I'd be more inclined to give Chelsea a shot, but I think given how expensive properties are up here on a valuation basis (super low cap rates) I don't know how much I want to speculate on appreciation in Chelsea. The analog to Charlestown and Somerville is the reason I think "maybe" and also looking at what is happening in East Boston, but I just can't get there with Chelsea quit yet....Thanks for your input and good luck with your business down in the DMV! 

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  • Matt M.
    Boston, MA · Member since 2011 · 11 posts · 0 votes
    10y

    Lynn will get you better cash flow, but probably more limited appreciation/upside. 

    Salem has a lot going for it, but it's a pain to drive there unless you live really close. 

    Both of these markets have large inventories of MF properties. 

    Good luck - those 1031 timelines move fast!

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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    Thanks, Matt...100% agree about Salem--I would hate to get a 2am fire alarm going off call. I will revisit Lynn. I looked at a larger mixed use property a while back (it was a nice huge brick building that had a massive fire, and would have been a great project, but I think the seller wanted a little too much money given the cost to renovate), but haven't really looked much since. I will resume my search there. 

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  • Josue Velney
    Developer · Boston, MA · Member since 2016 · 175 posts · 155 votes
    10y
    Jordan Crumley I agree the cape rate in Somerville is crazy right now. But I love the city. I was taking to someone yesterday and the advice they gave was for me to stack funds and wait till after the election to buy. This info may or may not help. I know the 1031 has strict timeline limits.
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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    Thanks, Josue. I agree--waiting would be ideal--but I am under the gun. I will need to identify exchange opportunities by Sep. 10th (my closings are on July 25th), so I need to act sooner rather than later....that said, I love Somerville too! I also think the Green Line Extension will happen, and that will make it an even better place to own real estate. 

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  • Josue Velney
    Developer · Boston, MA · Member since 2016 · 175 posts · 155 votes
    10y
    I agree about the green line extension. I been looking in the Magoun Sq area the most. Good luck with everything but if I was in your shoes Medford might be a good option.
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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
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    Will the green line extension actually help...or has thato premium already been priced in? Often the jump in value for these projects happens a couple years before completion 

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  • Josue Velney
    Developer · Boston, MA · Member since 2016 · 175 posts · 155 votes
    10y
    I believe the value will keep growing. For one some people are not completely buying into the green line coming. Ball sq is maxed out, Union Sq is getting to max but Magoun Sq and Medford street behind the high school has not reach the top yet.
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  • Flavio Zanetti
    Investor · Andover, MA · Member since 2015 · 269 posts · 67 votes
    10y

    @Jordan Crumley I believe you used my GC for those repairs, Sergio N. from S&J, isn't that correct? He just mentioned about a Jordan, one of this customers, who had just finished condos and they were sold within a week's time, from a 4 family in Somerville - either that or a freaky coincidence!!! 

    Anyways, to your question, I can say that a friend is looking into doing the same, after selling a commercial piece in the Southie, but he is looking into even more northern areas like Beverly and Newburyport area since Chelsea, Everett, north shore, cash on cash returns are not that great any longer... Not really sure if that's the only reason but I should know this soon.

    @Russell Brazil, I agree with you 100% as you and I talked about Chelsea before. East Somerville used to be a dump, so did Charlestown and look where those areas are right now. The former is hitting prices that are close to Davis Sq when it comes to condo's and price/sqft. Crazy if you told anyone that 10 years ago. So, being an investor in the area as well, I do believe we have already missed the perfect timing to get into Chelsea unless you are looking into a larger apartment complex / commercial units, which is totally out of my ball game for now at least.

    I also see a lot of positives as Boston continues to see major deficits in the apartments needed and Chelsea has seen a lot of investments lately: FBI HQ, major hotel chains opening up, faster and inexpensive Tobin Bridge tools, etc.

    Best of luck on your search and please keep us in the loop for whatever you decide/find.


    Flavio Zanetti

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  • Flavio Zanetti
    Investor · Andover, MA · Member since 2015 · 269 posts · 67 votes
    10y
    Originally posted by @Matt M.:

    Lynn / Salem

    Both of these markets have large inventories of MF properties. 

    I respectfully disagree with the above statement since both Lynn and Salem are seeing multi familyt properties being snapped up a few hours after open houses. I for one placed 5 offers at or above asking price in Lynn and Salem in the last month or so and on all of these I was beat by a cash offer. 

    Market is pretty crazy everywhere within a reasonable driving distance from Boston - even hotter than 2005/2006 peak!

    Flavio Zanetti

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  • Matt M.
    Boston, MA · Member since 2011 · 11 posts · 0 votes
    10y

    ...I never said it would be easy, just that the returns would be better than Somerville and Chelsea. Also, the herd is greatly thinned when you start looking at the larger properties. Skip the two and three family properties - competing with newbie investors and retail buyers is a loser's game!

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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    @Flavio Zanetti I did use Sergio on my project. And I think he mentioned you to me as well, he said he knew someone looking to purchase real estate in Lynn...small world indeed. 

    What are your guys thoughts about Danvers/Peabody/Beverly? 

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  • Flavio Zanetti
    Investor · Andover, MA · Member since 2015 · 269 posts · 67 votes
    10y

    @Jordan Crumley small world indeed! Good to "meet" you at least here :-)

    I have been looking at Beverly and the Danvers/Peabody area as well. For example, this house for instance (MLS 71958361 ~$410K listing) I placed an offer (mortgage contingency) but was beat by a cash offer instead... If you are good on timing and lucky enough not to have a cash offer to compete with - maybe your case is different since you are doing a 1031 exchange not sure - but there is still a lot of potential in the north shore yes!

    Ultimately, I would place these cities in my order of preference:

    1. Beverly

    2. Peabody

    3. Danvers

    Would be happy to grab a cup of coffee and meet up in person someplace in town if you are up too as well.


    Flavio Zanetti

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  • Jordan Crumley
    OP
    Investor · Woburn, MA · Member since 2016 · 13 posts · 4 votes
    10y

    @Flavio Zanetti would love to get a cup of coffee. Contact me at jordanrcrumley at gmail.com and we can set up a time/place to meet. 

    1Reply
  • Leslie Pappas
    Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
    10y

    Hi @Jordan Crumley, if you're an accredited investor and you decide to 1031 exchange, you might consider reinvestment into DSTs (these would most likely be outside the Boston area). They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. If that interests you, you can start to learn more at my website. Please let me know if I can help. Leslie

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  • Flavio Zanetti
    Investor · Andover, MA · Member since 2015 · 269 posts · 67 votes
    10y

    Email sent @Jordan Crumley

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Hi Jordan,

    The first thing is really what are you trying to do?

    I have exchange buyers as client from New York, California, Utah, etc.

    They have received offers they just couldn't refuse. So they are selling at low cap rates and trading out into other areas or states that are not as mature in the cycle where they can land good cap rates.

    The time does go by fast. You have to answer what return you want and how much headache with the replacement property you want.

    Example if you are exchanging out at  a 5 cap but in your area have to buy a 5 cap to deal with tenants,toilets, and termites all you have done is increased the scale of your headache with a larger property.

    What my clients are doing is trading out that 5 cap for a 7.5 to 8 cap on a more passive asset.

    Multifamily used to have more upside but has gotten frothy in recent years. The government keeps imposing more and more regulations on the residential renter side. Caps rates have gone down on MF but property taxes and other expenses have gone up.

    Right now you need to get differing viewpoints on what to exchange into and then make an informed decision that works for you that makes you comfortable.

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  • Justin ReppPro Member
    Realtor · Beverly, MA · Member since 2015 · 108 posts · 19 votes
    10y

    @Jordan Crumley I think the north shore is a great place to invest.  It is slightly less competitive when compared to Boston and surrounding communities.  The challenge is that in towns like Beverly, Danvers, Peabody there just isn't much inventory that comes on to begin with.  As someone from Beverly who does most of my business here, I can tell you that there is quite the buzz lately.  Beverly has a lot going for it: 2 colleges, beaches, vibrant downtown, 4 Commuter rail stops, 5 exits on 128, etc.  The problem with Danvers and Peabody is that they don't have the commuter rail.  I think that is key if you are going to invest anywhere outside of the city.  Also happy to chat in person if you are thinking of investing in this neck of the woods.  Good luck!

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  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    10y

    @Jordan Crumley

    I just did a blog article on my website and was on the Jason Hartman Podcast to go over 11 random tips for my recent 1031. Might check it out.

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  • Jason Hartman
    Rental Property Investor · Scottsdale, AZ · Member since 2012 · 314 posts · 146 votes
    10y

    There were some great tips in there @Lane Kawaoka - good job! 

    1Reply
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