Hello everyone,

Im a realtor in CA and will be selling (1031) my rental soon and have to identify a property or 2. Im looking for multifamily with 12% cash on cash return. I looked out of state but it seems most everybody is focusing on the turnkey which doesn’t make sense to me.

I prefer to be closer to CA but it depends on the deal. San Diego and Oregon have been on my radar but I like to hear from anyone who has a deal for me.

Any help is greatly appreciated

Maya

Maya, is Miami,Florida too far away for you? if not gave me a sign. Thank you

@Maya S. anything with that high of a yield will most likely be in a bad area. I highly doubt you will find that kind of cash return in Miami or California; I would adjust your criteria. Find a property in a good area in Az, Tx, or Fl with a cash return of greater than 5%.

We are selling a 16 unit in Az right now and will be 1031ing as well. If you are open to a TIC let me know. We will have around 800k of capital to roll into the next deal.

@David Lilley , @Maya S. , I think you're both seeing the same things.  Smaller assets are getting pinched and in order to get the higher returns you've got to look farther afield, bigger in size or number, more value add oriented, and definitely out of an appreciation market like SoCal.  Mike's suggestions . of TX and FL in particular have merit as does Az.  All are in growth regions.  And TX and FL are tax free states.  That's not going to help you immediately Maya because is still going to want their pound of flesh from your operating profits.  And they're even going to "clawback" tax on the appreciation while the asset was in CA when you sell (say thank you CA - not!!!).

But if you ever decide to domicile out of state in a tax free state, having your portfolio also be state tax advantaged can be a huge boost to your net.

Real estate's being good to everyone right now.  But there's plenty of markets that are big enough to have more opportunities than the local sharks can handle.  But are too small for the Turn Key folks to have set up shop.  I'd look at those tertiary markets very closely.

@Cristian Mazilu @David Lilley @Dave Foster

Thanks guys for your responses. I keep hearing about Fl & TX. Im hesitant of FL because of the hurricanes and AZ did poorly in last recession. Im kind of open to TX and the no tac state helps.  Dave do you think the same as David as far as the return goes?!

@Maya S. everyone I know that lives in California invest outside of Cali. They are either investing in the Midwest or the Southeast. Although deals are hard to come by anywhere, from what I hear they're even harder to come by in Cali. Good luck on your journey

Originally posted by @Maya S. :

Hello everyone,

Im a realtor in CA and will be selling (1031) my rental soon and have to identify a property or 2. Im looking for multifamily with 12% cash on cash return. I looked out of state but it seems most everybody is focusing on the turnkey which doesn’t make sense to me.

I prefer to be closer to CA but it depends on the deal. San Diego and Oregon have been on my radar but I like to hear from anyone who has a deal for me.

Any help is greatly appreciated

Maya

Just curious. What is it that you do not like about turnkey or that doesn’t make sense?

Originally posted by @Maya S. :

@Cristian Mazilu @David Lilley @Dave Foster

Thanks guys for your responses. I keep hearing about Fl & TX. Im hesitant of FL because of the hurricanes and AZ did poorly in last recession. Im kind of open to TX and the no tac state helps.  Dave do you think the same as David as far as the return goes?!

Hey Maya,

As a local Floridian, I find your worry quite humorous. Many homes in Miami are 30 years or older which means they survived some of the deadliest storms already (Andrew, Wilma, Irma, etc.).

Yesterday I visited two wood frame homes built in 1905, both still standing!

One thing I mandate all my clients to include in their numbers is property insurance. I've read of some investor's on this site not feeling they need any but because of the heavy storms here I would not recommend otherwise.

SFH premiums tend to sit between 1.5-3k annual. MFH premiums can get more variable due to age, zone, and unit count. You will sleep much better at night knowing your insurance will cover your new roof(s) when storm season comes around.

Happy investing!

@Tj Hines that's one of the reasons I'm hesitating to invest out of state. EVERYONE is doing it without knowing the consequences. Not that I have a crystal ball but I haven't found a deal that works for me.

@Greg Dickerson Hi Greg, The turnkey deals are good deals for the turnkey companies.They are the ones, in my opinion, who are making the profit. Besdise what am i going to do with 15-20 houses of $100K? managing the property managements and all these properties would be a nightmare I would assume. And then when the market hits low who are going to buy these from me if I were to sell. I'm looking for both cash flow and appreciation. Turnkey properties are fully appreciated if not over-appreciated and it's solely cash flow, at lease from I've seen.

Make sure you factor in property taxes if you're going to invest in Texas. Also if you decide to invest in south Texas factor in insurance, because we get hurricane's out here.

@Maya S.

since you are a real estate professional, you very well know markets are over priced everywhere including out of state.

Holding 20 to 30 houses if bought at the right time is actually a great cash flow machine and managing the property manager is part of the game in out of state markets.

You can always look in smaller multifamily deals in Riverside and San bernadino county if you are southern california or Fresno, bakersfield areas if you want to venture in central CA. If you are in bay area, i have seen multifamily deals in oakland, richmond etc.

I have not ventured in Syndication model yet, but i would take a hard look at them if i dont find any sfr or multifamily to invest in. Lot of reputable syndicators on BP and linked in..

@Maya S. I would add that no matter where you decide to invest, it is a really good idea to identify 3 replacement properties for your 1031 exchange, not just 1 or 2 like your post suggested.

As you may or may not know, you MUST close on one of the replacement properties you identify in order for your 1031 exchange to work. You have 45 days to ID the replacement properties and 180 days to close on one of them.

With that said, and as others have already mentioned, you’re likely going to need to expand your search criteria outside of San Diego and Oregon to meet your goals.

Avoiding the FL market because of hurricanes might be similar to people in FL not looking in California due to earthquakes though...?

Hi Maya, Have you looked into Opportunity Zones? You can get a map of them online and then overlay the states/cities where you are comfortable and it might help narrow the focus. There are some great podcasts on how the Opportunity Zone investing works, but you do get 180 days.

There's properties that fit those metrics in greater Boston area. I was reviewing something with 15% return yesterday that's turn key and in a B class neighborhood. I'm not sure if Northeast is a realistic market for you but have you tried reaching out to local brokers in the area with big market shares to see what they have that's fitting with your metrics? 

Seeing that you're a RE professional, you'd likely be doing a lot of the homework yourself but a good agent in other markets can help guide the way. 

Originally posted by @Maya S. :

Hello everyone,

Im a realtor in CA and will be selling (1031) my rental soon and have to identify a property or 2. Im looking for multifamily with 12% cash on cash return. I looked out of state but it seems most everybody is focusing on the turnkey which doesn’t make sense to me.

I prefer to be closer to CA but it depends on the deal. San Diego and Oregon have been on my radar but I like to hear from anyone who has a deal for me.

Any help is greatly appreciated

Maya

 Maya,

If you want to get 12% cash on cash on a MF, there are two ways to achieve that:

1. Go into D & F areas - but management will be a nightmare and this will not be passive for you. I don't recommend you take this approach as D & F areas are hard even with someone living locally. For out of state, it's disastrous and very risky

OR

2. Go into B & C areas but focus on properties that need some repairs or value-add so you can increase the rents substantially. I am into a real estate market where I can bump the rents $100-$500 a month with cosmetic improvements (less than $10K/unit) from landlords who have not keep up with rent increases happening in the market. This is the route that I recommend because this is what I do.

For perspective, I got this project - 42 units that I acquired for $1.4M and it will be worth $2.4-$2.6M as we increase the rents by $300/month. I will spend about $6000-$7000 a door in improvements.

Good point on the 45 days @Kyle Smith .  Having other options is key.  But even more key is having time to go along with those options.  If @Maya S. , simply names three properties and then sets about negotiating one the other two will probably be long gone by the time her first choice falls through (unless they're really not that good a deal - thats a whole different bad scene).  Multiple properties on a list is comforting in concept.  But in reality with the DOM we're seeing nationwide you almost have to negotiate linearly one at a time.  One falls through and you find the next because the others available at the time you went into contract are gone.

Just dealing with this today with a client where some good due diligence by his realtor late in the deal uncovered some bad acting on the selling broker and owner.  Fortunately the client had the foresight to name some DSTs as options.  The DSTs typically move a little slower and in this case will be a very good back up option if the sale continues to go south.

So a couple suggestions I always make are to :

1. Work early - You may have 45 days from the date of your sale but you can start your search much sooner than that.  You can even go into contract before you close your sale.   If you can at least get the property under contract before your sale and even close (or bail) early in the 45 day period you have the time to find another good back up.

2. Generate back ups in different sectors where they may be moving a little more slowly. Honestly, in these markets, real returns for real properties are not killing the passive DST market unless you're a really active adventurous investor.

BTW - the one big difference between FL and CA = Ya never know when the ground starts shaking.  But with a hurricane we can talk em to death for weeks - just about long enough for me to ride a tricycle out of harms way!!  Thanks ever so much Weather Channel.  Makes me long for the paint drying channel to come back.:)

@Maya S. . I would love to see 12% here in Dallas but it’s just not super realistic. If you’d like me to run some properties for you just say the word, happy to.

Oklahoma would be a great place to park your money for nice returns. 10%-15% sometimes even 16-20% Cap rates are farely easy to get in the midwest. We could provide the deals, Help with remodels, and put property management in place.

@Maya S. good job looking for deals before it's even sold. Those 45 days go fast. I would 100% consider OKC! You can pretty consistently get 12% COC with properties with tenants in place so you're cash flowing from day 1!

@Maya S. just saw that you said multifamily. Multi is actually pretty hard to snag here. It's here and you can get good deals but you really have to wait and move quickly when it becomes available! I'm not sure it would be the smartest target for a strict timeline! That said in just the last few months I've seen many investors secure SFHs here that fit their 1031 replacement needs. 

@Maya S.

I’m actually in the middle of selling a 16 unit I own and doing a 1031 into a much bigger property. The strategy I employed on the 16 unit is the same I intend to employ on the next property and it echoes what some of the other members have said, buy a value add deal in a B/C area and increase the value thru capital/ management improvements. The deal we are currently selling is cash flowing around 25% so there’s a ton of equity at this point... just going to do the same thing on the next one hopefully. Hope that helps

Dave