1031 Funds and Branching out From So. Cal. MidWest? Mid Atlantic?

Question

I've been stalking the forums for insight. I'm finally starting my own thread to ask point blank-- What would you suggest?

We are long term investors currently with Class A SFH in Southern California. We're selling one and will need to 1031 the funds. The goal is to buy 2 moderately priced ($130-175K) duplexes or well positioned SFH (75-150) in an area with job stability (military, government, medical, Amazon, higher education, etc). We'd like to stay in decent neighborhoods and cash flow is more important than appreciation.

The idea of duplexes (or triplexes) is appealing because it mitigates the vacancy factor. I've looked hard in Ohio, Michigan and Wisconsin. They are not off the list, but haven't found anything compelling enough to go and see, and the winters are harsh. Current areas of high interest are the Mid West, SouthEast and Mid Atlantic states, and we're trending towards the Carolina's, Virginia and Indiana near employment centers. Of particular interest are areas adjacent to Military Bases, colleges and medical facilities, all at once!

I have a lot of feelers out and would love some input before heading out to scout the world within the next couple of weeks. Where ever I buy that first plane ticket is likely to be the top contender, so I'm trying to narrow the field and not set out to research more than a couple of key areas that are hopefully driving distance from each other. We are seeing some duplexes and even SFH that cash flow over 1%, and that's obviously very sweet. It doesn't have to be turn key, but no big projects with a boatload of deferred maintenance. Since we're out of state, we're not looking for a huge headache or any kind of Flip.

Lee Ripma · Answer

@JJ P.

I personally invest in Kansas City and live in LA. A duplex without a ton of work that is at or better than the 1% rule can easily be had in a B/C neighborhood with decent schools. I was in the same boat as you. Picked KC, really enjoy going there, great props, nice people.

Parker Massengill · Answer

You could look into Raleigh NC and the surrounding area. The main industries are tech, health care, and education so the economy has stayed strong even during the pandemic. It's constantly on lists like "best places to live", or "best places for business". It's actually currently number 3 on the Forbes "Best Places for Business and Careers". Overall it has a lot going for it and the real estate market is strong. Or close by to Raleigh is Fayetteville which has Fort Bragg and the real estate price points are a good bit lower there.

Alex Olson · Answer

You should look at places you have lived, visited often, and or have family/very close friends living there. If any of these match KC, let me know. We can talk more.

Dan Krupa · Answer

@JJ P. I am from the East Coast and lived all over the US will in the military. We settled in Kansas City, MO three years ago and have been investing here full time. Great turns. Love the people and the city. If you have any questions feel free to reach out.

JJ P. · Answer

Thanks for the input @Dave Foster. Yes, it's so intimidatingly that it's easier to do nothing.

Those are some great tips and you are right about the rental demographics being different. I'll check into the three areas you mentioned.

JJ P. · Answer

These are great suggestions.

Our out of state network personal friends/family is sparse. We have distant relatives in the Boston area and in New Orleans. We're more the Christmas card type of family then the talk-every-week type. Neither of those places appeal to me for investments. I have a dear friend and some family members in Oregon, and we started out our search on the Pacific Coast in Oregon and Washington and eventually chose to go to an area with better cash flow and a broader economic base. Unfortunately, that taps out the out of state family that we have. So it will be new area.

@Parker Massengill that area is on the radar.

@Lee Ripma how is your Kansas City investment going? How long have you had it? Do you see it now and again?

@Dave Foster I just ordered The Clipper Ship, it looks like an interesting read.

JJ P. · Answer

Kansas City is a popular place! As of now, I'm heading to the Mid Atlantic to scout. If those areas fail the sniff test, KC is on the radar.

George W. · Answer

I'd say to look somewhere that you acutally know people already. Id imagine it becomes very difficult to manage a place that's far away. Also you dont want to be too dependent on one main employer like a military base or amazon. You want a place that has a nice little plethora of employers. NJ is great for that but it's also expensive. You wouldnt get a turnkey duplex here for less than 200k usually.

Shane Pollock · Answer

I would look into the Clarksville, TN market. Money magazine just named it the best place in the country to live. It is adjacent to Fort Campbell with over 40,000 soldiers, is home to Austin Peay State University, and employers such as LG, Hankook, Google, and Train to name a few.

Oak Grove, KY is a nice investment spot right ow too. Great value in every purchase. I just sold to properties there and did well. It is just north of Clarksville and the home of Fort Campbell. A new Churchill Downs Hotel, casino, and racetrack is to open in a few months.

Dave Foster · Answer

@JJ P., with 112 land grant universities, 470 military bases and over 4000 public universities (not counting several thousand private colleges of note) you've got your due diligence cut out for you. I like it that you settling in to a region and within that you can hopefully narrow your search down considerably.

One encouragement - you'll do ever so much better and you'll have a higher comfort level if you focus on areas where you actually know people. Vetting realtors, regions, and sectors all at the same time within a few weeks can be pretty daunting. That good friend of yours who personally knows an area or a good investment realtor in a particular area will deserve a huge Christmas gift from you.

One caution - I've invested in Military/college towns. And the two really don't mix. Military housing tends to be in one geography and student housing and staff/professor housing in others. The two demographics really don't mingle as much as you would think. So the due diligence in these areas is really double - You've got to identify the areas for each and the pricepoint and types for each in each area. Buying a property in one of these areas isn't a great a hedge against vacancy as you would think.

One quick read - The Clipper Ship Strategy by Richard Marbury. Yes it's written at a low high school level but is one of the best primers I've ever read on how to identify sources of govt and business investment and how to capitalize on those areas.

One recommendation - Given your demographic - Research Triangle - Raleigh, Durham, Chapel Hill.

1031 Funds and Branching out From So. Cal. MidWest? Mid Atlantic?

1031 Funds and Branching out From So. Cal. MidWest? Mid Atlantic?

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