How would you invest $400k?

Question

Hi BP Community!  My husband and I live in Denver, invest here and Columbus OH. We are looking to do our first 1031 exchange for 3 properties and should have about $400k in a single exchange or about $200k in each in 2.  We are selling 2 duplexes in Southern Orchards area in Columbus, OH and 1 SFH in the Highlands neighborhood in Denver CO. While the properties in Columbus have appreciated and cash flow nicely, we are loving the appreciation that we are seeing in our local market and think we can maximize our resources better locally.  My question for you is this: what would you trade into? How would you go about figuring out the next best thing? We know single family well and have wanted to scale up either in volume of home or into a mid size multifam.  There are a few reasons, I'm less than optimistic in Multifamily but it could be that it is just uncharted territory. We are looking to shooting for 12-15% return and are curious if there are other product types people are bullish on that we should consider? We would love other like-minded investor's thoughts on how they would approach the opportunity!

Jeff Fox · Answer

@Mycah Healey Since you are a realtor in Denver, you already know this, but it is really hard to find good multifamily deals anywhere on the front range right now.  With so much equity growth from the rapid appreciation, every one is looking to 1031 into multifamily properties.  Not saying it can't be done (especially since you may have some inside scoops) but I have been advising people to locate their subject property(s) first before selling.  Too many people buying bad deals because they are desperately trying to place 1031 money to beat the 45/180 day deadlines.

Brandon Sturgill · Answer

Buying Columbus properties comes to mind ;)

Hope you guys get some good guidance here. My personal take is to scale...more units...use leverage and work on getting a larger MF under your belt. Start your direct mail marketing campaigns and keep it personal...work on finding MF properties that are not owned by corporations and write them a handwritten letter explaining what you are after...and build a network of brokers in the market you want to be in...let them bring a deal to you.

Best of luck @Mycah Healey

Remington Lyman · Answer

Yeah, buying properties in Columbus, Ohio is the best

Mycah Healey · Answer

@Brandon Sturgill, thank you!  We are soooooo tempted to stay in Columbus.  We are trying to be honest about what we are good at and managing these is not at the top of the list.  It's unfortunate because they pencil better than a lot of our other properties.  Thank you for your feedback and vote for Multifam!@Tina Tsysh thanks for weighing in! We are not strangers to value add and major rehab so that would be ideal for anything we consider.  Definitely like the idea about the course to improve our analysis skills and open to the investment.If Im honest, Im concerned about Multifam with a push for space in response to COVID.  Definitely appreciate the words of caution @John Teachout. I think we've modeled the expenses for selling with/without my commission in consideration pending what property we are talking about.  Its actually some of the discussion with regard to the new administrations plans for 1031 that is driving us to consider this.  The property in Denver has really low return on equity and the appreciation has out paced the rent growth. So the logic is that we should be able to get more than $300/month if we deploy that $200k elsewhere?@Jeff Fox agreed!  I honestly don't want to compete with everyone going into multifam unless its through unconventional means (hotel conversion?).  Luckily the Denver property will be sold to our current tenants and we haven't yet listed the properties in Columbus.  It seems like we have a great opportunity and we don't want to self sabotage! Luckily our market is forgiving!Thanks all!

Tina Tsysh · Answer

I agree with what @Brandon Sturgill said. As Grand Cardone says, apartments are the best investment. People will always need to live somewhere.

Denver is a great market for multifamily - everyone from CA and other states is moving there so take advantage of the momentum. With $400k you can buy a nice size multifamily apartment. To achieve the kind of returns that you want, you are definitely looking at a value-add. In this case, you want to find some mom and pop owner who is tired of owning an apartment complex. It will most likely need repairs, but after repairs, you are able to raise rents considerably.

If you have never analyzed a multifamily deal, I would recommend investing in some courses where you can download models and learn how to use those. Good luck!

John Teachout · Answer

In light of the current situation being somewhat unstable due to both the covid and the new administration in Washington D.C., I'm not sure I would make any drastic moves, especially since the properties are cash flowing. There's a lot of costs involved in selling and then buying and by the time you factor those in, the potential gains are diminished.

Mycah Healey · Answer

@Steve Morris thank you for the suggestion.  Besides 12-15% return on 400k our goals are income oriented in the near term and we take the appreciation as icing on the cake. Im in real estate full time so not afraid of it being an active investment that requires work on the frontend as opposed to passive.  Let me know if there are specific questions about our goals that you think would be helpful to understand.  I  guess part of the purpose behind the post is we are curious what other investors would do if they had the money to invest.

Steve Morris · Answer

His/her Porsches would solve a lot of problems.

Otherwise, you need to be more concise on what your investment goals are.

Zeke Liston · Answer

Hi Mycah, that's great to hear that you've been doing well with your rentals. I would honestly look in both markets and go with wherever you can find a deal. The housing market is hot right now.

How would you invest $400k?

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