I am in the process of 1031-ing a single family rental into a larger multifamily (8+ units). Unfortunately, I live in Southern CA, which is a very difficult market to acquire multifamily properties in. Because of this, I am looking to invest out of state. I have been researching other markets for a few months now and am having trouble finding good, cash-flowing deals. I know off-market deals and direct mail often times are the way to go, but I need to narrow down my target markets in order to really focus in and build a network in those markets to find deals.
What markets are you guys finding good multifamily deals in currently? And how are you finding these deals?
@Amanda Davi I would highly suggest you look into Indianapolis, IN.
Indy has a strong rental market and is a landlord friendly state. Cap rates are compressing each year and the market handled COVID extremely well compared to others.
Also a really cool city to live in!
Check out this Berkadia 2021 Forecast.
@Amanda Davi - would love an update as you go down this path. I had thought to do something similar, but heard the process of executing a 1031 could be costly.
@Robert Ogez 1031 exchange fees range of course, but industry standards are around $900-1200 for an exchange. Compared to the tax liability that most investors face this is remarkably low. You also usually will not pay additional fees for exchanging between states or for trading out of SF and into MF.
@Amanda Davi I will raise one small flag -- if you 1031 out of California and into another state, the California Franchise Tax Board will make you file an annual form wherein you report on the replacement property you purchase and whether you still own it. Failure to do so will result in the CFTB assuming you owe it the taxes retroactively. It's a simple form to fill out (Form 3840) but one you should have on your radar.
The CFTB is a breeding ground for bad tax ideas, and those ideas unfortunately tend to metastasize eastward...
Depends on how you define a good deal. Lots of investors are doing 1031s out of CA in to Idaho where I live- low crime, high quality tenant base, less than 1% vacancy and super landlord friendly.
Best of luck!
@Sean Ross thank you for sharing advice on the 3840 form. This is my first 1031 so it is all new to me. This property in particular is in VA but the next one is in CA. I will make note of that.
@Amanda Davi As mentioned, the definition of a good deal is different for everybody. Depending on how much you have to use there may be some possibilities in Eastern Idaho, but again that also depends on what you are looking for in returns and if you have a preference of where you want to invest. Having great tenants that pay and take care of your property with low turnover and maintenance, to me is more valuable than a "higher" return in a low cost area that you may never actually receive due to more evictions, turnovers, and property damage.
@Amanda Davi any midmarket city in the midwest (ie Indianapolis, IN, Milwaukee, WI, Cleveland, OH, Cincinnati, OH) would be great places to invest if you find the right syndicator. Indianapolis, IN is a very rent friendly town that has had a steady growth across the board.
@Justin G. mentioned a great market. I'd also recommend looking into Sun Belt markets. We invest in Georgia, South Carolina, and North Carolina specifically. That region has been experiencing migration of former urban tenants looking to leave overcrowded urban areas for developing ones like the Sun Belt states. The cost of living in these areas is also cheaper. The pandemic has only exacerbated this trend.
Hope that helps
@Amanda Davi We're based near Milwaukee, WI and would be happy to tell you more about the local market. DM me for details!
@Amanda Davi , my suggestion would be to invest in an MSA where you have some good connections, namely a good property management company. There are many good markets for you (all much better than southern CA), but it won't matter how good the market is and how good the deal is if you aren't able to manage it well.
@Amanda Davi try Detroit