Washington State - 1031 Exchange Purchase

[Rhonda Wilson]

Hi Everyone, 

We (a family partnership of 3 members) recently sold a property in Oregon and are doing a 1031 Exchange into a property in Washington. I am posting the numbers in order to (1) share the information for the benefit of others and (2) get people's comments on the deal.

The property we're selling closes tomorrow and we will receive about $420k, which is enough for a roughly 25% down payment on this new property. The new property is being purchased for $1.66M. Right off the bat, let me say that I know that this isn't a "screaming" great deal. I do think that it is a good deal in the current environment, especially considering that the property is close to a university where enrollment is growing at double digits. For that reason, vacancy rates are near zero these last couple of years in the area. So, while the cash flow on this property may not be eye-popping, it's pretty solid on the income side with room to grow on the top line. I believe that rent growth in the 6% - 10% range in the next few years is possible. In other words, in 4 years, the $1100 per unit could well be $1300 - $1500 per unit. In the analysis, I've put in 3% growth. I would rather surprise to the upside than count on continued high rent growth. 

BiggerPockets Calculator Results

The biggest unknown is CapEx and Repairs. I currently have a combined $3k per month or 19% of income for this. This is not our first deal, by any means. This 1031 exchange will take us from 31 doors to 38 doors.

The property includes 14 apartments with the average apartment size of about 1000 sq feet. Rent is current $1100 per apartment which may be a little low for the current market due to a shortage of quality apartments. Furthermore, the previous owner renovated nearly all of the apartments in the last two years at a cost of $26k - $29k per apartment. The property is mostly turnkey at this point, which is good for us since our other properties have been fixers. 

Please have a look and let me know what you think!

-Rhonda