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Updated over 1 year ago, 05/26/2023
1031 into Multi-family
Hello! I've got a couple of investment properties (condo, townhome) in Chicago with overall market value of $500K+ that I'd like to 1031 exchange into better performing small MFR properties. Planning on individual exchanges to maximize sale but could look into possibility of a consolidated one. It really depends on strategy. I also have multi-family (duplexes) in Indianapolis and SFH in Birmingham, AL. I really like Indianapolis and KC as terrific markets for multi-family, but inventory is extremely low and hard to find good deals. Would love to hear more from folks who are going through or have gone through recent exchanges either in these markets or are there better MFR markets to look into that provide excellent ROI (1% rental yield, 10%+ cap rate, etc.). I'm open to creative ideas such as an established STR / AirBnB SFH in an established vacation market. Also open to part 1031 exchange and part creative financing options (traditional, DSCR, etc.) to maximize the replacement ROI. All ideas are welcome and appreciate them!!
- Real Estate Broker
- 1658 N. Milwaukee Ave Ste B PMP 18969 Chicago, IL 60647
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@Bhushan Shinkre congratulations on having some solid deals to trade up. I can't speak for the other markets on the list, but Chicago is a great area for multifamily. You are not likely to see 10% cap rates in good neighborhoods, but you can still achieve good returns over time. Are you using a PM company to manage these or are you self managing? That might be one of the most important questions for you to answer as you look to trade up.
Quote from @Bhushan Shinkre:
Hello! I've got a couple of investment properties (condo, townhome) in Chicago with overall market value of $500K+ that I'd like to 1031 exchange into better performing small MFR properties. Planning on individual exchanges to maximize sale but could look into possibility of a consolidated one. It really depends on strategy. I also have multi-family (duplexes) in Indianapolis and SFH in Birmingham, AL. I really like Indianapolis and KC as terrific markets for multi-family, but inventory is extremely low and hard to find good deals. Would love to hear more from folks who are going through or have gone through recent exchanges either in these markets or are there better MFR markets to look into that provide excellent ROI (1% rental yield, 10%+ cap rate, etc.). I'm open to creative ideas such as an established STR / AirBnB SFH in an established vacation market. Also open to part 1031 exchange and part creative financing options (traditional, DSCR, etc.) to maximize the replacement ROI. All ideas are welcome and appreciate them!!
Definitely great for looking at Indy or surrounding markets to indy.....
surrounding markets like lafayette....bloomington....shelbyville.....greenfield etc
Quote from @John Warren:
@Bhushan Shinkre congratulations on having some solid deals to trade up. I can't speak for the other markets on the list, but Chicago is a great area for multifamily. You are not likely to see 10% cap rates in good neighborhoods, but you can still achieve good returns over time. Are you using a PM company to manage these or are you self managing? That might be one of the most important questions for you to answer as you look to trade up.
Quote from @Kerry Noble Jr:
surrounding markets like lafayette....bloomington....shelbyville.....greenfield etc
Kerry, let's connect! Love to hear more on these ideas!
@Bhushan Shinkre Kansas City is known for cash flow and good appreciation. With everything going on here there is some good data to back it up. I can show you what others have seen here in KC for trading up using a 1031 exchange. Can you DM me?
I'm in the DFW market and cap rates have compressed to the point where larger multifamily deals will not support the 1% rule or 10% cap rate. Most multifamily deals are trading in the 4-6 cap range and paying investors about that much in quarterly distributions from the cashflow of the property if they haven't paused distributions. I'm not saying 10% cashflow on multi's doesn't exist in today's market as there may be other folks on there able to generate that but they're typically on more heavily distressed assets and we haven't been playing in that space or something super creative and outside the box (subject-to/seller finance with an unsophisticated seller). However you would be looking for the rare exception and not the norm. Returns tend to be heavily weighted generated on the exit price/exit cap with lower cashflow.
From a functional standpoint, if you were to invest using 1031 money into a larger deal, there is often a portion of the equity that will need to be raised via a syndication. Your company that is providing the 1031 money would partner with the holding company as a TIC and you would need to sign off on any large capital events like a refinance or sale alongside the syndication group.
Hey there @Bhushan Shinkre - Sounds like you are in an awesome position to be in, congrats to you!
I recently did a 1031 exchange last year and it went great! I sold a ground-up single-family home and purchased a 19-unit in Cicero, which is a western suburb of Chicago. Just curious are you in Chicago?
For me it honestly went pretty smoothly, I just started telling everyone what I was doing and what I was looking for and my good friend @John Warren hooked it up, with an off-market deal through a commercial broker.
In your situation, you could also consider a reverse 1031 exchange.
Happy to connect and provide any needed referrals or walk you through my story in more detail.
- Jonathan Klemm
- [email protected]
Quote from @Bhushan Shinkre:
Quote from @John Warren:
@Bhushan Shinkre congratulations on having some solid deals to trade up. I can't speak for the other markets on the list, but Chicago is a great area for multifamily. You are not likely to see 10% cap rates in good neighborhoods, but you can still achieve good returns over time. Are you using a PM company to manage these or are you self managing? That might be one of the most important questions for you to answer as you look to trade up.
Hi Bhushan, on Wednesday of this week I did a Continuing Professional Education (CPE) class for a group of 253 CPAs on STRs. We are finding that the majority of depreciation schedules are being done incorrectly on these. The options and limitations on STRs and strategy for maximizing the ROI while minimizing the tax liability and audit risk is complex. If you need guidance, I am here to help.
Quote from @Jonathan Klemm:
Hey there @Bhushan Shinkre - Sounds like you are in an awesome position to be in, congrats to you!
I recently did a 1031 exchange last year and it went great! I sold a ground-up single-family home and purchased a 19-unit in Cicero, which is a western suburb of Chicago. Just curious are you in Chicago?
For me it honestly went pretty smoothly, I just started telling everyone what I was doing and what I was looking for and my good friend @John Warren hooked it up, with an off-market deal through a commercial broker.
In your situation, you could also consider a reverse 1031 exchange.
Happy to connect and provide any needed referrals or walk you through my story in more detail.
Would love to connect, DM me. I'm based out of CA but used to live in Chicago for many years, along with investing. I'm looking primarily at small MFR since large MFRs are a bit more riskier assets from the standpoint of tenant quality, financing and at the price point I'm looking for.