1031E into Value-add out of state Apartment (ADVICE?)

Multi-Family and Apartment Investing
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1031E into Value-add out of state Apartment (ADVICE?)

Neno D.
Investor · Thousand Oaks, CA · Member since 2016 · 16 posts · 7 votes

Hello All,

New to the posting on BP, not new to the forms. Quick summary, my wife and I have made a financial goal to eventually migrate away from the 9-5 grind and have financial freedom through our passive RE. We have a sizable rental portfolio of single family/condo properties in California with significant equity we are planning to 1031E into multi-family properties over the next 3 years (vivid vision)

Looking for some general guidance or stories of how to make it happen, remote. Lots of stories about people investing in their backyard, but sunny SoCal is not the place for us due to CAP rates, etc, etc. We are targeting Nor Cal / Oregon / Nevada / Texas...

How do you, realistically, successfully buy and rehab value-add multi-family properties out of state? I realize we can hire a property manager, hire people to do repairs, etc...but it seems like that defeats the purpose of a value add, as you are likely going to over-pay for these types of activities without having deep knowledge or connections in the market? We are doing the right things, reaching out to brokers, calling, evaluating 5 - 10 deals a day (good or bad), learning all of the terms, etc etc...Just struggling with the actuality of buying a value-add property that needs decent work, rent increases, "overwatch" if you will, etc.


Any insight, stories or guidance would be extremely appreciated. Hope to hear from some of you folks! Thanks 

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Jason Shackleton
Investor · Ontario · Member since 2015 · 486 posts · 250 votes
5y

@Neno D. Congrats on your decision to leave your job and become financially free. I will add a few thoughts. I would do the 1031 exchange or a portfolio loan refi prior to leaving your jobs and also buy the bulk of your new multi family portfolio while working for the best rates. Also you and your wife will have a lot of time on your hands when you make this move to leave your jobs. I would use that extra time to do lots of the work yourself in a value add multi family purchase. Last point I would not deploy all of your money into the deal and tie it all up. Perhaps take the tax hit on one property sale and take that money off the table to live off. Having 2 people liveing off of cash flow from a portfolio is very possible but it would be nice to have some extra funds set aside to either do a few smaller deals or earmark for other non real estate related activities.

Good Luck!

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    5y

    @Neno D. We lived in Silicon Valley for 30 years we had rentals in a 1031x that we sold a few years ago and bought rentals in Wa-in the 1031x. We bought properties that required minimal rehab to get ready to rent and we had a PM. Then a few years later 2017 we moved to the area where our rentals are. Buying properties that have decent tenants or are almost rent ready worked for us. Profit margins are thinner of course but rehabbing from afar is not smooth either.

    Now that we live in the area we manage ourselves and the transition has been pretty good. It would be more difficult today this area has become pretty pricey too. Which is fine since we are not looking to scale very much anyway. We relied almost entirely on the internet and then flew up for a few days to look in person and close deals.

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  • Neno D.
    OP
    Investor · Thousand Oaks, CA · Member since 2016 · 16 posts · 7 votes
    5y

    Thanks @Bjorn Ahlblad that is great insight. We are starting to plan out trips too and see how many we would need to take to look at properties and close the deal. I am seeing the same thing, the ones that look to have a more stable tenant base on paper seem to have slimmer profits. Thanks for the insight. 

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  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y

    Really happy to hear you and your wife's goal!

     If you are new to the space, in my opinion the top two ways to get started are 

    1) Passively investing in a deal with operators that you have vetted (has a track record and shares similar values).

    2) Finding someone who is doing it successfully and giving them something of value (paying for mentorship or providing them with something else they value). 

    It is something you can learn on your own, however the amount of mistakes you can avoid and time you can save by doing either of these two things are well worth it. 

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  • Neno D.
    OP
    Investor · Thousand Oaks, CA · Member since 2016 · 16 posts · 7 votes
    5y

    Hey @Jeffrey Donis great points. I am currently seeking some mentors in the space and hopefully that works. Thanks for the feedback 

    1Reply
  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y
    Originally posted by @Neno D.:

    Hey @Jeffrey Donis great points. I am currently seeking some mentors in the space and hopefully that works. Thanks for the feedback 

    Of course! Wish you the best! 

    0Reply
  • Jason Shackleton
    Investor · Ontario · Member since 2015 · 486 posts · 250 votes
    5y

    @Neno D. Congrats on your decision to leave your job and become financially free. I will add a few thoughts. I would do the 1031 exchange or a portfolio loan refi prior to leaving your jobs and also buy the bulk of your new multi family portfolio while working for the best rates. Also you and your wife will have a lot of time on your hands when you make this move to leave your jobs. I would use that extra time to do lots of the work yourself in a value add multi family purchase. Last point I would not deploy all of your money into the deal and tie it all up. Perhaps take the tax hit on one property sale and take that money off the table to live off. Having 2 people liveing off of cash flow from a portfolio is very possible but it would be nice to have some extra funds set aside to either do a few smaller deals or earmark for other non real estate related activities.

    Good Luck!

    2Reply
  • Neno D.
    OP
    Investor · Thousand Oaks, CA · Member since 2016 · 16 posts · 7 votes
    5y

    Thanks, @Jason Shackleton

    I like the idea of a portfolio loan and have looked into it previously...I think I will venture down that path again and take another look. Appreciate your insight. 

    1Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    5y

    @Neno D., I would argue the value-add play is 100% based on hiring others to do the work. Otherwise you are adding less value and essentially trading a 9-5 for many more hours and likely more frustrating headaches.

    Depending on the size of the asset, the property management group could very well have a construction arm to it, where you do pay for their services, but they will handle GC'ing the work.  This is all a financial game, so as long as budgets and models are built with the cost of others doing the work, and the numbers still work, you are ahead.  It is more challenging to do this from a far, and I would not flip a house from a far, but if you are talking 50+ unit properties, you can typically budget in professional contractors into your numbers and reduce the risk vs Chuck and Truck handyman that needs to be overseen daily.

    0Reply
  • Michael Swan
    Rental Property Investor · San Diego, CA · Member since 2014 · 1k+ posts · 2k+ votes
    5y

    @Neno D.

    I told my story on how I did the same thing on podcast 238.

    Swanny

    1Reply
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