Motivated Buyer - 1031 exchange SC to CO

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Motivated Buyer - 1031 exchange SC to CO

Nicholas S.
Denver, CO · Member since 2013 · 16 posts · 0 votes

Guys I need some advice.  I've got a nice 3/2 house 2 car in a Charlotte suburb just over the border in South Carolina that I've consistently rented out for the last 10 years.  It gets $1300 easily right now.  It cash flows nicely to the tune of about $300/ month after maintenance and vacancy budgeted out.  Also puts about $150/mo to principal.  So lets say $450/mo profit.  ....House will sell for $160K easy - I owe $95K.

A prior tenant is very interested in buying it - even though it isn't for sale LOL.  I now live in Denver and hate that it is so far away (although I've managed it myself from thousands of miles away for the entire time I've owned it)  Anyway - this seems like a golden opportunity to move the investment closer.  Especially since we can probably do a realtor-less deal, and the market is hot in Charlotte.  But... my goal is to own more rentals, not less, so I only want to do it if I can 1031 it for another.

Problem is - Denver is expensive.   Too simplify with even numbers, I can get into something similar for about $300K. Such a house will probably rent for $1800, so if I put all the equity into such an exchange I'd end up with a cash flow of ~$100/mo, and about 450 to principal.  So lets say $550 profit, but 1/3 the actual flow.

I'm also afraid of a correction in both Housing prices and Rent in Denver.  It has been hyperbolic for the last couple years.  A relative who is a big-wig in the banking industry - just moved to Denver - told me (without me asking him) that he would not buy into this Denver market right now.

Thoughts?  And thank you so much in advance!!!

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Joseph Graeve
Investor · Claremont, CA · Member since 2014 · 150 posts · 36 votes
10y

Good questions @Nicholas S. I think the best advice here was from @Matt M. Get the buyer ready to buy and then find the house to buy here in Denver. Also there are some good cashflowing properties down in Colorado Springs that I come across that are close enough to you in Denver but also a completely different type of market with less competition. The 5 military bases and colleges here make it an excellent rental community.

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  • Dan MackinBusiness Member
    Real Estate Agent · Erie, CO · Member since 2014 · 1k+ posts · 512 votes
    10y

    A few things I would look at. 

    1. What's the market doing where the current rental is? If it's rising like Denver then keeping it may be prudent for appreciation reasons. 

    2. Are there other ways you can get more out of that rental such as a refi? 

    3. You'll get opinions all over the place for Denver's market and I'm sure someone will chime in here with theirs. There's multiple pieces of data showing we have a rise continuing, but at some point a cusp will get reached. Of course it's all educated speculation.

    4. Hardest part with CO is actually getting the deal. With a 1031 you're very restricted so it can make things that much more stressful. Just something to think about.

    720-466-3378
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  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    10y

    We have discussed this at length on here about the bubble situation.  This thread should help: https://www.biggerpockets.com/forums/628/topics/31...

    I'm looking at 2 condos now for $135k each that will rent for $1200 a month here in Denver.  I just closed a deal for a client last Friday at $115k in Arvada that will rent for $1100 a month. 

    Deals can be had, but they are hard to find. I'd get your tenant ready to buy and not put him under contract until you find a place here. If you 1031, then you'll be under the gun to identify 3 properties. With this market, it could take some time.

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  • Travis Sperr
    Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes
    10y

    @Nicholas S. a few things to consider:

    1031 can be very difficult right now- just the ability to identify properties in the time frame could be a real challenge.

    If you sell to a prior tenant you need to take 100% control of the situation - there is a reason they are a tenant and it is not because they have been waiting for your house to be for sale. You need to control the lender they work with, someone you have a great amount of trust in and know they will tell you the truth and not drag out a transaction that doesn't close.

    If the market is strong, you will likely get more on the open market - so make sure you don't sell below the discount for standard commissions.

    If you are looking for deals in Denver that cost $300k and rent for $1800, you are looking in the wrong places - there are better cashflow deals here than that directly off the MLS. To your profit break down - what is more important - cashflow or principal pay down?

    Can you stretch the cash from the sale? buy a rental and maybe buy another owner occ house here locally? To get another unit? not all tax advantaged but could help you reach your goal.

    Denver market inflated - data actually doesn't suggest that, but there are too many threads beating that dead horse.

    Big-wig relative banker - exactly how many rental properties does he own?

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  • Scott Adams
    Investor · Trimble, MO · Member since 2016 · 13 posts · 4 votes
    10y
    Any chance to owner finance? Keeps the revenue coming and you sit on the asset till it is paid or they refi Just a thought, best of luck
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  • Nicholas S.
    OP
    Denver, CO · Member since 2013 · 16 posts · 0 votes
    10y

    Man I appreciate the thoughts - I truly do - and I sincerely thank you guys for taking the time to convey them to me.  

    So I should clarify.  The tenant is not the current tenant, but a well to do family who rented my house a few years ago, short term.  They were in a fix.  Their home sold sooner than expected and they needed a place while they had their million dollar home built on the lake.  I was sooooo lucky to have them.  They took amazing care of the place and have stayed in touch with me since.  Further clarification, it is the daughter, now grown, who is looking to purchase her first home.   I'm not worried in the least that they are on the level.  But it is good advice about not somehow doing worse than open market thinking I'm getting a deal with them.  I will be careful on that.

    Sounds like I need an agent in Denver who can help me identify properties that will cash flow.  I'm a novice at this.   I'd rather have more actual cash flow given the choice over principal pay down - to answer another question.

    I'll check out the threads dealing with Denver market either too high or just right.  I didn't mean to drag that into the topic, just that it factors into it.  Bottom line, I'm not afraid to buy into this market if I could get 1 or 2 places that cash flowed.  I'm planning on accumulating properties long term, so I'll recover from any dip over the long term. I'm 46 and hope to build a nest egg, because my current job doesn't have anything in terms of retirement.

    Are there certain realtors that specialize in investment properties?

    I wish I could buy an owner occupied with some of the money in addition to a rental, but I already purchased a home to live in here a year ago.  

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  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    10y

    There are two of us in this thread alone. I'm really surprised more haven't chimed in as a lot of agents have joined BP lately looking for business.

    Check out the site and pick a few agents you like to talk to about your plans.  

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  • Joseph Graeve
    Investor · Claremont, CA · Member since 2014 · 150 posts · 36 votes
    10y

    Good questions @Nicholas S. I think the best advice here was from @Matt M. Get the buyer ready to buy and then find the house to buy here in Denver. Also there are some good cashflowing properties down in Colorado Springs that I come across that are close enough to you in Denver but also a completely different type of market with less competition. The 5 military bases and colleges here make it an excellent rental community.

    2Reply
  • Nicholas S.
    OP
    Denver, CO · Member since 2013 · 16 posts · 0 votes
    10y

    Thank you @Joseph Graeve!  I will look into Colorado Springs!

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  • Colin SmithBusiness Member
    Realtor · Colorado Springs, CO · Member since 2013 · 987 posts · 447 votes
    10y

    @Nicholas S., I would agree with Joseph that your money is better invested in Springs. Denver certainly isn't a bad place to be, but you'll likely find higher ROI's and better cash flow. The other great thing about Springs is we are a very stable market with the military bases. We haven't had the boom like Denver though prices are on the rise, and it would be unlikely we would crash as hard as the rest of the nation if their is another market downturn due to the military stability. Denver on the other, in my opinion, has a bit more of a volatile market and could be hit hard if the market crashes.

    2Reply
  • Account Closed
    Property Manager · Baton Rouge, LA · Member since 2014 · 2k+ posts · 195 votes
    10y

    Answers to real life questions in the Private Sector of Real Estate can get confusing as to which market to invest, where is the "Boom" market with prices on the rise and when will they fall..?

    According to the United States Social Security Administration Baby Boomers are the real Boom in Denver and Nation wide, thousands of Baby Boomers are turning 65 everyday in communities all over the Country.  I deal in the non profit sector... Just using Matt M numbers for example and forgetting 1031 as we are an I.R.S. designated 501 ( c ) 3 Tax Exempt Housing Provider.  Matt spends $385,000 on two Condos and a House, and if expense is low and the Market is stable may gross $3,500 per month in Rental Income before Tax..  For said same $385,000 I invested in  over 12 one bedroom supportive housing units in a retirement community I co-own, I pay no tax, and a matter of fact, I get numerous tax deductions for helping my government with a national crisis.  Low income frail elderly, low and moderate income veterans plus people with disabilities is my focus. My Net rental income is $8,400 a month.  Find a Charitable Trust join it,  and keep in simple

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