1031 Exchange for $4M: Where to buy and how many units?

Realtor · CA · Member since 2017 · 35 posts · 20 votes

I have a client about to enter into a 1031 and I need to find a cash-flowing investment, ideally almost turn key and low headache. I’ve mostly checked out Cleveland and Vegas but he may want to stay in CA. Where would you start?

A little about his criteria: He plans to buy and hold 10+ years. C property B neighborhood. 80%+ occupancy, he's from CA and would like to invest there (maybe Sacramento) but CAP is most important (8+%).Not looking for a construction heavy project. Focused on cash flow from the start over future appreciation, no rent control.

Out of those examples, what other criteria questions should I be asking him and in your opinion which of these should carry the most and least weight? Thank you for your input.

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Kurt Jones

Investor · Longwood, FL · Member since 2017 · 108 posts · 78 votes

Given his criteria on cap rate and no rent control, I’d stay away from the people’s republic of California.

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Kurt Jones
Investor · Longwood, FL · Member since 2017 · 108 posts · 78 votes
7y
Given his criteria on cap rate and no rent control, I’d stay away from the people’s republic of California.
15 Reply
Bob Prisco
Specialist · Cleveland, OH · Member since 2018 · 1k+ posts · 666 votes
7y
@Kyle Longacre his 1st mistake , staying in Ca. More then likely he will be getting around 3- 6% net, why bother ? Much better opps 11- 15% nets out of state, Good luck
1 Reply
David Miller
Developer · Magnolia, DE · Member since 2017 · 75 posts · 28 votes
7y
@Kyle Longacre he has a real opportunity to make a lot of money off of his capital but I believe the best way would be to diversify the cash. 1/3 to 1/2 of the money should go into a turn key income generating project and the other into a development ground up project which can have the potential of making 3-5x return over 10 years. Contact me and I will explain more over the phone.
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Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
@Kurt Jones
@Bobprisco is East Cleveland a market I should stay out of all together? Specifically I’m looking at a few projects near Euclid/Noble Rd. What about Cleveland Heights?
That’s hilarious Kurt, the people’s republic. Yes I mentioned briefly that staying in CA would lower his cap rate but be a safe option for long term appreciation. I also let him know CA is not known for being landlord friendly.
Eliminate CA from the discussion, what are your top 3 options for the market? How would you answer the rest of that question other than advising against CA?
Thank you for the input.
1 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Kyle Longacre:

I have a client about to enter into a 1031 and I need to find a cash-flowing investment, ideally almost turn key and low headache. I’ve mostly checked out Cleveland and Vegas but he may want to stay in CA. Where would you start?
A little about his criteria: He plans to buy and hold 10+ years. C property B neighborhood. 80%+ occupancy, he's from CA and would like to invest there (maybe Sacramento) but CAP is most important (8+%).Not looking for a construction heavy project. Focused on cash flow from the start over future appreciation, no rent control.
Out of those examples, what other criteria questions should I be asking him and in your opinion which of these should carry the most and least weight? Thank you for your input.
How well do you know this client? Have you worked with him before? The parameters of what you are looking at are all over the map. Would hate to see you get taken for a ride by a client who isn't serious about working with you.
2 Reply
Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
@jameswise I appreciate the counsel. It is my uncle and I haven’t worked with him before, he has successfully bought and sold a couple warehouses in San Francisco but wants out of that market and reached out to me to give him ideas and start doing homework on different options.
He is giving me the opportunity to be involved to learn the entire process and to bring the best options to him and he will look them over with his counsel. If I can’t deliver anything appealing enough he is obviously going to play it safe with his broker in SF and just do a similar project to the previous two.
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James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Kyle Longacre:

@jameswise I appreciate the counsel. It is my uncle and I haven’t worked with him before, he has successfully bought and sold a couple warehouses in San Francisco but wants out of that market and reached out to me to give him ideas and start doing homework on different options.
He is giving me the opportunity to be involved to learn the entire process and to bring the best options to him and he will look them over with his counsel. If I can’t deliver anything appealing enough he is obviously going to play it safe with his broker in SF and just do a similar project to the previous two.
A client like that would be a hard pass for me man. Sounds like you've got a close to 0% chance of getting a paycheck out of the time & effort you are putting into this relationship. You'll make the most money as an agent when you get laser focused & only work with clients who fit into your focus. California real estate cannot be any further apart from Cleveland real estate. Your uncle is beyond unfocused on what he wants to do with his money. To further that he's family. Mixing Real Estate & family isn't a great idea either. If you google it you'll see thread upon thread upon thread of agents who've had terrible experiences mixing business with pleasure.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
@James Wise Jim you got any opportunity zones there I have to think so .. maybe deep dive into one of those would be good you can sacrafice some cash flow today ( more opts to look at) with the knowledge that you have no cap gains and not stuck in forever 1031 situation just a thought
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
7y
To add on jay’s idea about opportunity zones. He also only has to invest the capital gains in the oz. he can take his original investment and put it in his pocket.
1 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Jay Hinrichs:

@James Wise Jim you got any opportunity zones there I have to think so .. maybe deep dive into one of those would be good you can sacrafice some cash flow today ( more opts to look at) with the knowledge that you have no cap gains and not stuck in forever 1031 situation just a thought
My thought is that takes the OP further down a rabbit hole that he doesn't wanna go down.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Bill B.:

To add on jay’s idea about opportunity zones. He also only has to invest the capital gains in the oz. he can take his original investment and put it in his pocket.
for those selling right now it sure is a unique opportunity.. i think though also its complicated enough that bigger players / developers /syndictors are going to benefit. I dont really know myself. just in reading the head lines and glancing at the act.
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Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
@jameswise thanks again for the advice, but I’ll hard pass on your counsel there. I have a FT job outside of RE that more than pays my bills and an opportunity to work on this would be a huge learning experience and there is definitely a possibility for compensation.
8 Reply
Carly Bailey
Real Estate Agent · Akron, OH · Member since 2018 · 11 posts · 15 votes
7y
Have you checked out the Akron market?
1 Reply
Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
I’m glad you asked, a lot of the highest cap rates on LoopNet are near Euclid and Noble in East Cleveland. Even the listing agent said I would want to avoid that neighborhood. Do you know if Cleveland Heights is a better area? Checkout this Akron property, let me know if you see something better not on LoopNet
0 Reply
Roy Muller
Member since 2018 · 27 posts · 19 votes
7y
@Jay Hinrichs. Most of Stockton is in an oz. might be a nice opportunity to grab and rehab a medium sized complex. The oz rules require major rehab.
0 Reply
James Wise
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
7y
Originally posted by @Kyle Longacre:

I’m glad you asked, a lot of the highest cap rates on LoopNet are near Euclid and Noble in East Cleveland. Even the listing agent said I would want to avoid that neighborhood. Do you know if Cleveland Heights is a better area? Checkout this Akron property, let me know if you see something better not on LoopNet
Cleveland Heights is a much better neighborhood than East Cleveland. Pretty much every neighborhood in the entire Cleveland market is better than East Cleveland.
2 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
7y
@Kyle Longacre. Why on earth would you want to suggest owning in a place like East Cleveland as an out of state investor?
The most sure fire way to make a terrible suggestion to your uncle is to suggest investing in East Cleveland
2 Reply
Ryan Evans
Rental Property Investor · Cleveland, OH · Member since 2016 · 653 posts · 769 votes
7y
If you set your uncle up in East Cleveland you're going to have some awkward Thanksgiving dinners after he loses several million dollars!
1 Reply
Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
As I’ve said, when the listing agent advises against it that’s all I needed to hear. East Cleveland is not on the radar, I was simply saying some of those properties have the highest cap rates.
0 Reply
Account Closed
Specialist · Northern CA · Member since 2014 · 154 posts · 57 votes
7y
@Kyle Longacre
Would your client be interested in the emerging legal cannabis industry. We have real estate opportunities that have reputable companies paying high lease rates in long term 5 to 10 year lease contracts. 8-12% currently with upside potential of 25-30% once leasee is in full operation.
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Kyle Longacre
OP
Realtor · CA · Member since 2017 · 35 posts · 20 votes
7y
@Anthony Contento
Thank you for teaching out but for now that doesn’t fit his criteria.
0 Reply
Jason Graves
Rental Property Investor · San Diego, CA · Member since 2018 · 242 posts · 234 votes
7y
@Anthony Contento
Let talk. I’m interested... let me know how to connect with you.
2 Reply
Jared Lichtin
Contractor · Cleveland, OH · Member since 2014 · 317 posts · 181 votes
7y
@Kyle Longacre I do a lot of work in cle heights, I’d be happy to talk. I also live in so cal. Feel free to reach out.
1 Reply
Kody Foster
Longview, TX · Member since 2017 · 26 posts · 17 votes
7y
@Kyle Longacre Kyle, our family has done a fair amount of exchanges. We mostly built, bought and sold Dollar General and Family dollar stores. We also have exchanged into a Strip mall and a Self storage complex. We have liked the self storage complex and it has preformed well for us. This may be something you Uncle should consider.
0 Reply
Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
7y
Originally posted by @Bob Prisco:

@Kyle Longacre his 1st mistake , staying in Ca. More then likely he will be getting around 3- 6% net, why bother ? Much better opps 11- 15% nets out of state, Good luck
A lower cap rate indicates higher desirability. It means that investors are willing to accept a lower return on cash because they (the market) has determined this is a better asset class.
So this is what happened to BP ! People are being taught that higher cap rate is better / more profitable ?
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