Real Estate Agent · Livermore, CA · Member since 2016 · 173 posts · 74 votes
I'm selling a rental (escrow scheduled to close 2/14) and need to find a replacement for 1031 exchange. I'm looking for cashflow, C class or better, multifamily would be great. Property needs to be around $550K to complete the 1031.
I live in the San Francisco Bay Area and am considering a single family with in-law that I might make a primary residence one day, but it's probably not the best use of my investing resources so today I'm diving into what my other options look like.
I've been looking around in the central valley and Sacramento area since it's within a 2 hour drive. I've also been considering out of state, where I have some contacts, in Vancouver WA area, Bend OR, and St. Louis MO. Would love some feedback from any investors in these areas or any other areas I should consider.
Congrats on your 1031 sale! I'm an investor and Realtor in metro-Phoenix and am quite partial to the area here but there are many areas throughout the country (Texas, Tennessee, the Carolinas, Nevada, etc.,) that are investor friendly. It just depends on your goals and what you are looking for. In less expensive areas (like Phoenix) you could split up your 1031 funds into multiple properties, find a property manager (I know a few), get tenants lined up (we have ALOT here), mortgage the properties (we work with the best in the state, with great interest rates) and then enjoy the cash flow, tax breaks and appreciation. We have about 300+ people moving into our county every day (employment is booming) so housing is in high demand. You are in a fabulous position but the clock is ticking for you to find your new properties. I'd be happy to help answer any questions you may have about Phoenix. :)
@Maria D. Great! Just wanted to add that I brought it up because it sounded like you were maybe wanting to find somewhere more local to you to invest. Obviously there are OOS markets that offer much more substantial cash returns. But as far as CA I've had great luck here. Awesome area with large university, new development, appreciation, right on the ocean and ability to rent places by the room. Good luck on wherever you go!
@Maria D'Aura With $550k in cash, you can buy a pretty big class B mobile home park with seller financing along the east coast, southeast, and the southwest. We've taken down 52 pads, 3 parks using merely $225,000 in the past a few months on seller financing. I only do smaller parks becaue of its lucrative returns and small capital needed, but since you have more than double that money, you can invest in a stable, bigger park.
@Maria D. I notice no one mentioned a turnkey provider. You could likely have them line up multiple properties that cover the amount you need to exchange and do it rather quickly. The houses we buy in Memphis run about $130-$170k and rent for $1200-$1500.
Hi Jeff,
Interesting thought here. I have not considered turnkey. Mainly because they seem to get a bad rap and I feel like I need to be EXTRA careful in choosing one. If I were to go this route how would I vet a turnkey provider?
I always ask the basic questions to make sure they are a TRUE TK Provider. Do they own the home before selling it? (NOT a listing agent) Do they do the renovations in-house? Do they place a tenant PRIOR to closing? Do they do the management in-house? Are they cash-only?
I stick to secondary and tertiary markets like Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio. Mostly in the South.
@Maria D. Would love to hear what you end up buying and where when you complete the 1031. I am also looking to buy more property and interested in other markets.
@Maria D'Aura With $550k in cash, you can buy a pretty big class B mobile home park with seller financing along the east coast, southeast, and the southwest. We've taken down 52 pads, 3 parks using merely $225,000 in the past a few months on seller financing. I only do smaller parks becaue of its lucrative returns and small capital needed, but since you have more than double that money, you can invest in a stable, bigger park.
This is peaking my interest. Mobile home parks have crossed my mind before, but here where I live it would be way too pricey. However, I can appreciate that it may be easier to manage from a distance than a multifamily. Can you PM me if you have any leads? Thanks.
Texas hands down. All 4 major cities are in the top 35 cities to live in the US. There are 3 major components to buying rental property. Affordability, Job growth and population growth. I prefer Houston TX heres why;
As of 2019 Houston has the #1 market for job creation in the US.
Houston remains on the lower end compared to other major cities with a median home price between $175-223K and Median rent between $995-1500
In the Top 10% for cities with the highest appreciation in the US. depending on what area between 4.42-7.21% (Houston) vs 3.37% (USA)
As of 2018 Houston is #14 for cities with fastest growth and migration from other US cities
As of 2019 Houston is #30 out of 125 cities for best places to live in the US
If you're not finding good deals locally, have you thought about where you might like to travel to? Dave Van Horn's article was a good eye opener for me; find a few good tourist attractive areas that you'd like to travel to once a year or more, then check out the short-term rental market there. Purchase a property that has no or favorable HOA, then you have a place to stay for your vacation trip yourself, and since it's advisable to stay at your own vacation rental at least once a year, this gives you a chance to update and improve it while there (or failing that have your friends or family stay at a discount and post review of what they find.)
If this is something you might be interested in and want someone to manage it, there are companies that specialize in that now.
Seconding @Maria D'Aura's recommendations of Vancouver, WA and Bend, OR.
Bend is great. Prices in Bend have started to creep up after folks became aware of the city's strong population growth (>29% from 2010-2018), strong demand drivers (outdoor lifestyle, relative affordability, proximity to Mt. Bachelor/Hood, great microbreweries, diversifying employer base, and low vacancy rates. Bend's currently one of the fastest growing cities in the states. We just financed a couple multifamily deals in Bend - if anyone wants a copy of the appraisal's market data section or some market data from CoStar, etc. - give me a shout. If you can get a deal off market, you can make money when you buy there.
I also like Boise, ID Missoula, MT and Bozeman, MT. Boise is starting to get a bit frothy due to it's recent highlights in the Wall Street Journal (lots of folks looking for yield out there), but you can still get a great deal near Micron or Downtown near BSU if you aren't afraid to rent to students! Imagine that parents will probably sign parental guarantees on the leases too - but your turnover will be higher since students tend to... break things.
Seconding @Maria D'Aura's recommendations of Vancouver, WA and Bend, OR.
Bend is great. Prices in Bend have started to creep up after folks became aware of the city's strong population growth (>29% from 2010-2018), strong demand drivers (outdoor lifestyle, relative affordability, proximity to Mt. Bachelor/Hood, great microbreweries, diversifying employer base, and low vacancy rates. Bend's currently one of the fastest growing cities in the states. We just financed a couple multifamily deals in Bend - if anyone wants a copy of the appraisal's market data section or some market data from CoStar, etc. - give me a shout. If you can get a deal off market, you can make money when you buy there.
I also like Boise, ID Missoula, MT and Bozeman, MT. Boise is starting to get a bit frothy due to it's recent highlights in the Wall Street Journal (lots of folks looking for yield out there), but you can still get a great deal near Micron or Downtown near BSU if you aren't afraid to rent to students! Imagine that parents will probably sign parental guarantees on the leases too - but your turnover will be higher since students tend to... break things.
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Out of curiosity, what makes you say Bozeman Montana?
I don't know whey @Ian Stuart said that but Bozeman is a very fast growing college town. Very similar to what you described in bend. If you can find a cash flowing rental you will make out like a bandit with monthly income and great appreciation. There is little to no vacancy here as well. There is also great skiing an hour away at Big Sky. I have seen a lot of VRBO's popping up here and doing very well. The main problem is not enough inventory so properties move quickly. Anything that cash flows will generally go under contract next day. There is the opportunity to be creative and add ADU's etc. Feel free to reach out if you want to know more about Bozeman.
I like Bozeman because I have seen 80's-90's vintage deals with classic vintage (formica counters, original vinyl floors, classic vintage fixtures, white/black appliances, etc.) trade for >6.25-7.00% caps going in with value add upside for those willing to hunker down and make upgrades in order to realize rent upside. Sometimes, even on marketed, listed deals. Tough to find that sort of going in cap on marketed listings in over-saturated markets such as Seattle, Portland, Boise, SLC, etc. Everyone and their mother, and all her friends - are looking for deals in those markets. As a result, in some cases you're looking at 4.50% going in caps in those markets on marketed deals for late 2010's vintage with attractive amenity packages. For further comparison purposes - even LIHTC affordable, 2000 vintage deals with 60% AMI restricted rents that don't burn off until 2050 in Vancouver/Portland are trading to 6.00% caps...
I like the market drivers in Bozeman. Bozeman has Montana State University nearby, which attracts students for similar reasons that Boise State does - outdoor environment, good education at a decent price (compared to University of Washington, U of Oregon, Boulder, etc.) in addition to other strong drivers such as a burgeoning tech industry, low vacancy rates (sub 3.00% market wide on CoStar - probably lower on smaller 4-20 unit deals), and limited concessions on new leases. MSU also lends to having an highly educated workforce, which will always attract employers long term. Better than buying an 6.5% cap in a Wyoming coal town in my opinion!
In addition - Montana (i think) is a non-disclosure state. Meaning - if you buy a deal there - the county assessor isn't going to jack your taxable value (and thus - year one real estate taxes) sky high post-sale like they would up here in Seattle. So - your tax bill won't pull a fast one on you after you buy (i think). Oregon is a middle ground between Seattle and a non-disclosure state such as Idaho/Montana. They can't raise your taxes more than 3.00% due to Measure 50. However - Oregon is going to cap your annual rent bumps to 7.00% + CPI inflation.
Nowadays, every small market that has a bit of tech influx is dubbed the "Silicon (Insert Local Geographical Identifier Here)". Becoming a bit of cliche reading through some of these brokers' offering memorandums. So - grain of salt on the "tech diversification" statement earlier.
Can anyone tell me, if Maria does not designate a new property ( or properties) for the 1031 exchange, within 45 days after selling her existing one, does she still need to pay any fees to the 1031 exchange company ? Or is it just the tax hit with the IRS? I've considered doing a 1031 exchange but have heard, as others said, that it can be difficult to find a new property within 45 days or to make the purchase of the new rentals contingent on the sale of the old one(s)
It will be very hard to cash flow at a price point of $550k because you will need to collect $5500 in rent or more per month.
The best idea is here in the comments to split it up to multiple houses. Or a multi family can still cash flow but that Market investors say is over valued, and I'm not sure if it's a like kind real estate that qualifies for a 1031, another I'm not sure if possible to do is to put the money in a syndication.
If you're not finding good deals locally, have you thought about where you might like to travel to? Dave Van Horn's article was a good eye opener for me; find a few good tourist attractive areas that you'd like to travel to once a year or more, then check out the short-term rental market there. Purchase a property that has no or favorable HOA, then you have a place to stay for your vacation trip yourself, and since it's advisable to stay at your own vacation rental at least once a year, this gives you a chance to update and improve it while there (or failing that have your friends or family stay at a discount and post review of what they find.)
If this is something you might be interested in and want someone to manage it, there are companies that specialize in that now. If you set your sites on Arizona, PM me and I can go over some options.
I have considered this and looked into properties that are resort like with hotel management onsite, but individually owned. There's one actually near me that I like, but I'm not convinced it's a good investment. Are you referring more to owning an airbnb type property? I would think that would be more challenging to manage from afar.
Can anyone tell me, if Maria does not designate a new property ( or properties) for the 1031 exchange, within 45 days after selling her existing one, does she still need to pay any fees to the 1031 exchange company ? Or is it just the tax hit with the IRS? I've considered doing a 1031 exchange but have heard, as others said, that it can be difficult to find a new property within 45 days or to make the purchase of the new rentals contingent on the sale of the old one(s)
Hi Tricia,
This is a good question. The fees for my 1031 exchange are split. Part of the fee is paid when I sell and the other part when I buy the replacement. So, if I never buy the replacement I don't pay that second part of the fee. That said... about 70% of the fee is paid in the first part.
@Maria D. Santa Barbara, CA there is no where better
Hmmm. No where better I agree. But for rentals? I'd love to hear more. I've never even considered looking in that area as I assumed it was nearly as expensive as Silicon Valley.
It will be very hard to cash flow at a price point of $550k because you will need to collect $5500 in rent or more per month.
The best idea is here in the comments to split it up to multiple houses. Or a multi family can still cash flow but that Market investors say is over valued, and I'm not sure if it's a like kind real estate that qualifies for a 1031, another I'm not sure if possible to do is to put the money in a syndication.
Hi Meir,
I'm looking at multi-family and splitting it up into 2 or 3.
Which market are you referring to that investors say is over valued?