On the clock with a $1 mil in a 1031 - what would you do?

Multi-Family and Apartment Investing
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On the clock with a $1 mil in a 1031 - what would you do?

Mike S.
MI · Member since 2013 · 21 posts · 14 votes

Hello BiggerPocket Community,

Long story short on the clock with a low 7 figures in a 1031 - what would you do?  

Currently have small portfolio of rentals that cash flow.  Current market is very low inventory if nothing at this price point for multi families.. 

What should my goal be? how high should the bar be and what kind of measurable(s) should I not lose focus of. 

Bottom line developer came in and paid the premium. 

Thanks for your help BP Community! 

-Mike

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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
3y
Quote from @Alex Olson:

@Mike S. Would look at a market like KC. Happy to provide you a detailed analysis of what sub markets are like if interested. DM me. 


 Totally agree. We closed a 29 unit building on Benton Blvd earlier this year in a 1031 and it was a cash cow.

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  • Jacob St. MartinPro Member
    Investor · Charlottesville Virginia · Member since 2021 · 348 posts · 346 votes
    3y

    Hello Mike, this is a great question. If the inventory is really low in your area have you started looking into other areas? If Multifamily is your area of expertise I would recommend staying in that lane unless you have a desire to branch out. 

    If you do want to branch out, another option is to move into a slightly different type of real estate investing. Since it is a 1031 I don't think you could move into self storage or anything commercial but you could maybe move into a couple of high end STRs which you would probably have an easier time finding right now. Plus, if you aren't interested in managing an STR you could always partner with someone who will operate and get a higher return on your capital with STRs. I am looking for a partner on an STR deal right now so feel free to reach out if you are interested.

    Lastly, I believe it is possible to move 1031 money into a syndication. If you are really unhappy with all of the real estate options that you are seeing you could park your money in a syndication however, this will likely yield lower returns. If you are interested in this route, I have a partner from a previous deal currently doing a capital raise for his syndication that I could connect you to. 

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Mike S.:

    Hello BiggerPocket Community,

    Long story short on the clock with a low 7 figures in a 1031 - what would you do?  

    Currently have small portfolio of rentals that cash flow.  Current market is very low inventory if nothing at this price point for multi families.. 

    What should my goal be? how high should the bar be and what kind of measurable(s) should I not lose focus of. 

    Bottom line developer came in and paid the premium. 

    Thanks for your help BP Community! 

    -Mike


     I'd parlay that low seven figures into multi family properties in middle markets like Kansas City or Pittsburgh or Orlando. Let me know if you need referrals for Realtors etc... in those areas.

    Stephanie

    0Reply
  • Account Closed
    Manhattan Beach, CA · Member since 2021 · 76 posts · 40 votes
    3y

    Hi Mike,

    Depending on how much time you have left. I'd recommend starting to research other markets. I would do a deep dive to see which cities are growing yet have not blown up. Which cities have had a steady growth of rent and population. 

    Aside from that, you can invest in a DST. DSTs are passive investments that qualify for the 1031 exchange. The DST will allow you to invest in a different market, but a sponsor will manage the asset and pay income out. I sent you a DM with a bit more info.

    0Reply
  • Rachel KokosenskiPro Member
    Realtor · West Michigan · Member since 2017 · 105 posts · 53 votes
    3y

    @Mike S.- what part of Michigan are you in? I'm in western Michigan, Muskegon/Lakeshore area, and there are definitely great deals to be had out here. Feel free to connect with me if you'd like to discuss further!

    0Reply
  • Jake Kucheck
    Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes
    3y

    Good problem to have!  Have you identified any replacement properties?  Where are you in your window for doing so?  $1M can be 1 property or it can be like 30 properties, depends on what you're set up to manage.  Is there a geographic restriction or preference?  Your question requires more questions to be answered before the original question can be answered.  If you want my answer as to a particular market for SFRs vs Multi-Family, those answers themselves are very different.  

    1Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    3y

    @Mike S. Would look at a market like KC. Happy to provide you a detailed analysis of what sub markets are like if interested. DM me. 

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Alex Olson:

    @Mike S. Would look at a market like KC. Happy to provide you a detailed analysis of what sub markets are like if interested. DM me. 


     Totally agree. We closed a 29 unit building on Benton Blvd earlier this year in a 1031 and it was a cash cow.

    2Reply
  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    @Mike S. How much time do you have left? Also congrats!

    0Reply
  • Dustin Street
    Real Estate Agent · Kansas City, MO · Member since 2022 · 147 posts · 40 votes
    3y

    Bring that money to KC! We have loads of options for both multi and single family homes. You can get deals that really don't need that much work, have good cashflow, and long term appreciation. 

    0Reply
  • Elise Bickel TauberBusiness Member
    Real Estate Agent · Cranberry Twp · Member since 2017 · 385 posts · 198 votes
    3y

    We just helped someone with a 1031 exchange coming from another city. I'm located in Pittsburgh PA. We were able to do what Stephanie p said. We ended up doing a nice value add multi here right outside the city!

    0Reply
  • Adrian StamerPro Member
    Real Estate Investor & Agent · Richmond, VA · Member since 2013 · 319 posts · 167 votes
    3y
    Quote from @Dustin Street:

    Bring that money to KC! We have loads of options for both multi and single family homes. You can get deals that really don't need that much work, have good cashflow, and long term appreciation. 

    Send more some more details on KC multis, looking for new markets
    1Reply
  • Kelly Iannone
    Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
    3y

    1031'ing into an apartment syndication is an option. You'll need to be a tenant in common but for the $$$ you're talking that shouldn't be an issue for operators. Unfortunately, we just closed on one 170-unit and are not yet ready to bring our next deal to market. Good luck! 

    0Reply
  • Dustin Street
    Real Estate Agent · Kansas City, MO · Member since 2022 · 147 posts · 40 votes
    3y
    Quote from @Adrian Stamer:
    Quote from @Dustin Street:

    Bring that money to KC! We have loads of options for both multi and single family homes. You can get deals that really don't need that much work, have good cashflow, and long term appreciation. 

    Send more some more details on KC multis, looking for new markets
    Messaging you now!
    0Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    3y

    Go STR baby! Once you go STR you don't go back. LOL Actually I do both... I love to diversify. I would buy nice condo in Hawaii that allows STRs or a ski condo in Co or Ut. And sit back and relax. The condos in these areas usually have an in-house team that handles everything for you. You have the $ to do it right for a great guest experience. Go for it!

    1Reply
  • Cole SchlackPro Member
    Realtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes
    3y
    Quote from @Melissa Nash:

    Go STR baby! Once you go STR you don't go back. LOL Actually I do both... I love to diversify. I would buy nice condo in Hawaii that allows STRs or a ski condo in Co or Ut. And sit back and relax. The condos in these areas usually have an in-house team that handles everything for you. You have the $ to do it right for a great guest experience. Go for it!


     Our Team assists owners with finding  STVRs in both Hawaii and Utah. I agree they can be great choices the key is accounting for the tax value and personal enjoyment you get from owning them. 

    0Reply
  • Ace Goodrich
    Phoenix Metro, South Florida · Member since 2022 · 37 posts · 19 votes
    3y
    Quote from @Stephanie P.:
    Quote from @Mike S.:

    Hello BiggerPocket Community,

    Long story short on the clock with a low 7 figures in a 1031 - what would you do?  

    Currently have small portfolio of rentals that cash flow.  Current market is very low inventory if nothing at this price point for multi families.. 

    What should my goal be? how high should the bar be and what kind of measurable(s) should I not lose focus of. 

    Bottom line developer came in and paid the premium. 

    Thanks for your help BP Community! 

    -Mike


     I'd parlay that low seven figures into multi family properties in middle markets like Kansas City or Pittsburgh or Orlando. Let me know if you need referrals for Realtors etc... in those areas.

    Stephanie


     Hi Stephanie, good suggestion. What would you say makes for a great investor-friendly agent in Orlando are (focus in multifamily, although of course in that market Short term rentals are also good)?

    Thank you in advance

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Ace Goodrich:
    Quote from @Stephanie P.:
    Quote from @Mike S.:

    Hello BiggerPocket Community,

    Long story short on the clock with a low 7 figures in a 1031 - what would you do?  

    Currently have small portfolio of rentals that cash flow.  Current market is very low inventory if nothing at this price point for multi families.. 

    What should my goal be? how high should the bar be and what kind of measurable(s) should I not lose focus of. 

    Bottom line developer came in and paid the premium. 

    Thanks for your help BP Community! 

    -Mike


     I'd parlay that low seven figures into multi family properties in middle markets like Kansas City or Pittsburgh or Orlando. Let me know if you need referrals for Realtors etc... in those areas.

    Stephanie


     Hi Stephanie, good suggestion. What would you say makes for a great investor-friendly agent in Orlando are (focus in multifamily, although of course in that market Short term rentals are also good)?

    Thank you in advance


    Short term or long term is really up to the investor. They've got to do some due diligence on the type of investing they want to do. As for the great investor/Realtor friendly agent, someone that focuses on investment properties is a huge deal.  You don't want someone that's only done cookie cutter purchases.  

    I tend to like to work with people that come to me as a referral.  Referrals are always best because they are somewhat proven.  One of the worst things a Realtor can do (and lender too by the way) is not pick up their phone, text or return emails or simply respond back in a reasonable time period.  It happens all the time and it's maddening.  Now we try to work almost exclusively with referrals and it's been life altering.

    1Reply
  • Tyler GibsonBusiness Member
    Real Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
    3y
    Quote from @Ace Goodrich:
    Quote from @Stephanie P.:
    Quote from @Mike S.:

    Hello BiggerPocket Community,

    Long story short on the clock with a low 7 figures in a 1031 - what would you do?  

    Currently have small portfolio of rentals that cash flow.  Current market is very low inventory if nothing at this price point for multi families.. 

    What should my goal be? how high should the bar be and what kind of measurable(s) should I not lose focus of. 

    Bottom line developer came in and paid the premium. 

    Thanks for your help BP Community! 

    -Mike


     I'd parlay that low seven figures into multi family properties in middle markets like Kansas City or Pittsburgh or Orlando. Let me know if you need referrals for Realtors etc... in those areas.

    Stephanie


     Hi Stephanie, good suggestion. What would you say makes for a great investor-friendly agent in Orlando are (focus in multifamily, although of course in that market Short term rentals are also good)?

    Thank you in advance


     When you say multi-family in Orlando are you talking about 5 plus unit commercial or are you looking for residential multifamily 2 to 4 unit? Orlando short-term rentals can be great for cash flow but typically require a larger investment on the front end.

    [email protected]407-590-9858
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    2Reply
  • Doug Spence
    Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
    3y

    @Mike S. Don't make a bad purchase just to save tax dollars. Don't let the tax tail wag the investment dog!!

    0Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 819 posts · 641 votes
    3y

    An acceptable yield, cheap-brick/low basis triple net lease

    0Reply
  • Mike S.
    OP
    MI · Member since 2013 · 21 posts · 14 votes
    3y

    Thank you to everyone so far that has posted. This is in incredible community and one that I don't tap too frequently. My expertise lies in the field of college rentals - have posed low risk and great returns. As much as I am excited to get into STR, I have yet to go down that path - would love to learn more about them. Not sure what resources are available besides just simply taking action. Once you're in it, you're in it - it forces that learning curve!!!

    Syndications seem interesting as well. Again not my forte.  

    Long term rental is more than likely the route I take initially with management - as we have a growing family.  

    Recently, looked into Pittsburgh due to proximity and the college scene with CM & UPitt (+ others) all in the vicinity is highly interesting - does anyone have anything solid? @Stephanie P.

    What a great thread and really appreciate everyone's input. 

    Cheers,

    -Mike
     

    1Reply
  • Jack Martin
    Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
    3y

    @Mike S. as an alternative or "backup" to a 1031 exchange, you can likely solve the tax deferral issue with an investment that includes cost segregation and bonus depreciation. If you are not able to execute on the timing for the 1031 exchange or find suitable replacement property, you are not dead in the water. Especially since it is early in the calendar year. 

    We have had investors get stuck when their exchange property fell through at the last minute and have been able to solve the tax deferral with bonus depreciation. Often referred to as "the lazy man's 1031" the bonus depreciation strategy allows you the full calendar year, so if the exchange you are contemplating falls apart for any reason, keep that in mind.

    All the best, 

    Jack

    1Reply
  • Craig Lessler
    Investor · Scottsdale, AZ · Member since 2016 · 86 posts · 61 votes
    3y

    I agree with Jack. Take advantage of the bonus depreciation now before it completely phases out. Most people do not realize that with the bonus depreciation and cost segregation, a 1031 exchange is no longer required to defer the capital gain and depreciation recapture tax. In fact, Jack's idea is superior to a 1031 exchange, because it gives you the flexibility to spread out the proceeds from a sale of property into several investments so that all of your money is not concentrated into only 1 property. This provides diversity if there should be a problem with any one investment property. I own 30 rental properties and I have been using the sale proceeds from the occasional sale of a rental property to invest in syndications which have been actually providing higher returns (averaging far better than 15 to 20% annually).

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    @Mike S.

    I’d buy 3 properties with the cash. Then do cash out refis on them later on to scale up.

    1Reply
  • Jim PfeiferBusiness Member
    Investor · Dublin, OH · Member since 2014 · 241 posts · 495 votes
    3y

    Absolutely agree with Jack and @Craig Lessler.  My CPA calls it the Lazy 1031 - I did it to defer all of the taxes from a sale of all of my multifamily properties a few years ago.  I was planning to go full time into passive syndication investing, so it worked with what I was planning to do anyway.  It will allow you to invest passively, defer your taxes, and  diversify your portfolio by market, operator and asset class.  You mentioned you are not familiar with syndications - join a Community!  It's absolutely the best way to find quality partners.

    0Reply
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