1031 Exchange into Multi-family: 1 year later. Now what?

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I've been reflecting back as it is about a year now, since I began shopping for my 1031 exchange. Back then, I pivoted out of an owner occupied Los Angeles office building (that I had owned for 15 years), into 3 multi-family properties in the same city in the midwest for a total of 64 units on a more conservative leveraging scenario than what was likely possible. It’s been a journey and now I find myself saying in an existential voice “now what?”

With the 64 units (spread between 2 local management companies), It took 5 or 6 months to get everything smoothed out and putting off reliable cash flow. With that amount finally hitting original projections for the last few months, I have about 60 to 70 percent of my household overhead covered with apartment cash flow as long as it stays relatively smooth and consistent. During the process of selling and buying and then stabilizing, my household income took a hit, because none of this was putting off much initially and that issue piled up a bit. Which is something I will have to dig out of a bit.

Because of my path from office building to a pile of apartments, I have never flipped a house, never wholesale-d, never bought a duplex to then trade up to a 4-plex, etc.

I still have a business in Los Angeles, that I manage and support from the East Coast where I now primarily live. However that business has been on a long decline due to obsolescence of our core services. What’s left of that operation probably has only a few weeks or months left in it. While this business was my main bread and butter for many years, it no long cash flows enough to move my meter. My wife is working, so with those pieces and apartment cash flow, we are close but not quite at the 100 percent of household needs.

In terms of any tweaking the apartments’ performance, we are close to the end of much any tinkering, without pouring money into them for major upgrades. The heavy lifting is done. Evictions, turnover, rents raised to new high points on new tenants, rents raised on current tenants wherever possible, some nagging issues cleaned up, operational costs scrutinized. The signal of “New Sheriff in Town” has been relatively effective. We are at near 100 percent occupancy all around. It just took longer than I hoped to do all this tweaking. My two management companies are not awesome, but adequate. It’s mostly to do with their communication with me that stinks. They otherwise get things done in their own way. It’s just really far away from my way, so it annoys me.

In other non real estate arenas, I have mutual funds both in and out of retirement funds and I don’t see anything to tweak there, I am satisfied with the performance of all of that.

What I am finding is an itch to make something happen to turbo boost my household cash flow issue. Unlike a service business, with the apartments, I can’t have a sale or take on extra jobs or stay open later. Instead I find myself willing the months to move faster, so we can get to the first of the month, so we can get into a new rent collection cycle and get a hold of the profits from that. And that doesn’t seem entirely healthy.

Because of the super lean early months with the apartments and distractions from the slowly dying business, I’m feeling a bit land-locked financially. Talking to the mortgage lender on a credit line on then apartments, but it could very well be too early for them on that.

Even so, then what? Flip a house? Or on this level, does that just seem like a weird hobby? What’s (for the lack a better term) an “experience appropriate” real estate move for a guy with 64 units and years of small business experience who needs a little more cash flow?

@Michael Klinger , it seems like the next logical step is to take the value you’ve appreciated with your multi family properties and roll it into the next multi family deal. I obviously don’t know your numbers but I’m in a similar situation albeit on a much smaller scale. I’m looking to go from 4 units to 50 in the next year. I’m taking the value (appreciation based) that’s been added over the last 15 years and rolling it into larger properties with more upside potential. If I were you I’d be looking to go from 64 to 500. Easier said then done of course. Time to go big :)

Hi @Michael Klinger , Have you considered becoming completely passive with real estate investing? Real estate syndication's are a great way to earn solid returns (cash-flow) while not having to actively do anything. If you have any questions, feel free to message me. I am more than happy to help.

Thanks for the input. It's interesting getting all of the agendas to align. I think we (I) expected that my Los Angeles (non real estate ) business would have a little more life in it, than how it has played out in the last year. So the reliance on cash flow from the apartment properties for living income has become more important than I expected. And the apartments were a little slower to perform properly than anticipated, so we are still feeling that burn a little bit.

Otherwise I can see how much quicker I could build the apartment business, if I could put the returns back into it. But... not possible right now.

And we've only owned these properties for 8 or 9 months. I have started a preliminary discussion with the bank that holds the mortgages about getting access to equity (we have a conservative LTV), and they are cautiously interested, running the numbers and thinking it over. Even though it's probably a hair early in arc of all of this.

I went into what we acquired with buy and hold intentions. I really don't see selling them this soon to trade up. We didn't choose mortgage types for a short term play. I plan to keep them and find other ways to increase income. I also don't really want to take over the world. Number of doors doesn't impress me when I look in the mirror, except vaguely we might need to get up to around 100 total of similar caliber to get to the income level that I would like to see to be near 100 percent living off them.