1031 Exchange in COVID-19 Market

[Dale Balsis]

Hi. I’m currently in the process of a 1031 exchange. I started the exchange right at the beginning of the outbreak, February, and was able to close the sale last week. I should close on the replacement property 22 May.

Just wanted to hear others’ experiences on renting out a unit during a lockdown. Luckily my other property is occupied and they’ll be staying during this time. But it looks like a tough time to rent a vacant place right now . I’ve been browsing Craigslist and have been seeing the same properties listed and even some dropping the price and having “move in specials”. Thoughts and experiences?

The new unit is a 3/2/2 located in Nuuanu (Honolulu, HI).

[Isi Nau]

Aloha @Dale Balsis

Times are definitely tricky right now in Hawaii.  Here's what we're seeing on Oahu:

-The DOD stop movement order has had a big impact. Basically very few new military personnel are moving here. May through August is usually pretty heavy with military movement, allowing lots of rental vacancies to be filled. With no new military coming here right now, things are extremely slow. The military members who are already here, waiting to PCS out of Hawaii, already have housing and aren't looking to move.

-A 3 bed in town will likely draw local families more than military ones.

-The local people are sitting tight. Many are wanting to wait and see. This applies to buying and renting. So there's very little movement with this group as well.

-We usually list our vacancies on Craigslist, FB, and the MLS. FB is quickly becoming our best source for bringing in applicants. The MLS is good because all the big real estate websites (Zillow, Realtor, etc.) are populated from the MLS.

-Landlords are definitely offering move-in incentives.  They have to in order to attract the few people moving around right now.  I would recommend doing the same.

-Since the future is so uncertain, I'd try and find a tenant whose employment may not be effected during this time.  But at the same time, pickings are slim, so this type of ideal tenant may not ever apply.

-I would consider allowing Section 8, especially in the current economic conditions. We have very good tenants who receive Section 8, and the rent is virtually guarantied. Not sure how many Section 8 recipients are looking for a 3 bed in town though, but who knows.

-Worst case scenario, I would plan to not have it rented until late June.  Fortunately you are closing in late May, so your first mortgage payment likely won't be until July.  This should buy you enough time to find a tenant.  Hopefully the economy opens up again in late May or June.

Hope this helps! Good luck!