New member from Southern California

27 Replies

Hello there, just joined from Southern California after finding BP doing a 1031 related search on Google.

We have a rental condo in Orange county that's barely paying for itself but had a major appreciation in the last 10 years, so considering doing a 1031 to out of state since CA is really not appealing to us anymore, and avoid capital gain taxes.

I was thinking about Colorado or Pennsylvania, just because that's 2 states we go for family or business on occasion so we know a little bit about the area, but now on BP I discovered you can buy turn-key anywhere in the US. Never heard of turn key until last week!

Through the 1031 we'll have to re-invest in the $350K range. The few turn key i looked up so far seem to be in the $50-100K range. I'm concerned that would really complicate things if I had to exchange into 4 or 5 properties, any advice ?

Anyway I've been listening to a couple podcasts a day, they seem to nicely fill up the socal commute each way... Great job Josh and Brandon!

Chris.

Hi @Chris E.

Welcome to BiggerPockets!

Nice to see another fellow SoCal investor here.

First off, don't mix your investment strategy or decisions on markets that you visit or vacation. I've seen that become a mistake over time. Your investment must make sense the day you buy it -- that means the market, neighborhood, property, management, etc.  Otherwise it's not truly investing.

A 1031 exchange is a great idea -- especially now as I feel the SoCal market has once again become  inflated and "frothy".  We have a client doing a 1031 on two CA condos with lots of equity and leveraging up into greater cashflow and safer markets outside of CA. 

Turnkey investing has been around for over 15 years but it's only in the last 3 to 5 years that it's picked up steam in terms of popularity (or recognition).  The term "turnkey" means different things to different people...

It's not the right solution for everyone, but for many it is.

Last but not least, don't confuse the power and flexibility of a 1031 exchange. It can really help simplify things for you.  Keep in mind that turnkey properties will range in price from $50k to as much as $400k-$500k for multiunit fourplexes.

Anyway, I could go on...  :-)

Continued success!

Welcome!

It definitely seems that if you are looking for cash flow these days it's pretty much necessary to look outside of Southern California. 

It's great you have equity that you can utilize in another area. Turnkey could be a good way to go but I agree that you shouldn't invest in a market just because you vacation there. 

You want to look at a number of factors , crime, vacancy rates , growth , development plans,etc. 

@Chris E. just a quick note. Just because you now own 1 property now doesn't mean you can't purchase more than one (or 10) as turn key(s). You should find a knowledgeable 1031 agent and discuss your strategy. There are limits on the number and dollar amounts of properties you can identify so be sure that whatever route you go works.

Remember too that you must maintain the same or more debt on the new property as on the old.

Hi Chris!  You will have only 45 days to identify your replacement properties so be sure to decide on a few things before you list it.  As mentioned you will need to match up the debt/equity on the new properties, but as long as you do that more than one could work.  The kicker is the 45 days to do all that.  I work with some products you may want to consider as an option.  I'm not sure if they will work for you but I'd be happy to discuss.  Send me a message and we can connect on that.   

@Chris E. Keep in mind if you are thinking long term buy and hold, SoCal on average has better overall returns when factoring equity and cash flow. The top five Cali cities where landlords made the most money since 2009 are SJ, SF, LA, SD and Riverside. Those are also the top five for the nation. Population is predicted to increase 30% for SoCal by 2030. That translates to millions more renters coming online. Your OC condo is one example of how this goes down typically. If you can find any under valued assets locally that will potentially blow away any returns one will find in straight up cash flow plays. 

"Real estate is an appreciation business" Donald Trump June 2015

@Chris E.

@Bill S. is correct. There's nothing inherently preventing you from selling one and buying 4 or 5.  Where you'll run afoul is with the identification period and list. 

If you name 3 or fewer properties on your 45 day identification list it doesn't matter what they're worth.  

But as soon as you name 4 or more properties on your list then the total value of the list can be no more than 200% of the value of what you sold.  So if you sell for 350K and want to name more than 3 properties then the total value of the properties you name can be worth no more than 700K.

If you have to name more than 3 properties and their total value is more than 200% of what you sold then you can still do your exchange as long as you close on at least 95% of the value (not number of properties) of the list.

But there's another way to slice it.  Start your shopping for replacements so that you close on everything you're going to buy within the 45 day identification period and then by default your 45 day list will be made up of only properties you have closed on so you're good.

So I guess the takeaway here is yes you can do it.  It's not that hard if you've got good guidance.  Your qualified intermediary as guide will be key to navigating you around these obstacles.

Hi!   I am new to BP and live in CA, although I am not new to investing I am looking outside CA and maybe inland CA for better cash flow at this point.  It is hard to own properties out of state for those of us that are hands on type of owners tho.

Regarding 1031s, I have done several 1031 exchanges and one option which has worked well for me is to do a reverse exchange, meaning you buy a property  (assuming you have the cash and can obtain a loan) and then you have 180 days to sell your existing property.  This frees up the time pressure.   I have also done forward and reverse within the same transaction, meaning I bought a property, sold my more expensive existing property with 180 days, and then identified another property to buy within 45 days with leftover monies from my property sale.   It was a tricky transaction, but it worked extremely well.  You need to have a good 1031 exchange accommodator and tax advisor and follow their instructions to the letter.  Check it out and good luck!

Originally posted by @Chris E. :

Hello there, just joined from Southern California after finding BP doing a 1031 related search on Google.

We have a rental condo in Orange county that's barely paying for itself but had a major appreciation in the last 10 years, so considering doing a 1031 to out of state since CA is really not appealing to us anymore, and avoid capital gain taxes.

I was thinking about Colorado or Pennsylvania, just because that's 2 states we go for family or business on occasion so we know a little bit about the area, but now on BP I discovered you can buy turn-key anywhere in the US. Never heard of turn key until last week!

Through the 1031 we'll have to re-invest in the $350K range. The few turn key i looked up so far seem to be in the $50-100K range. I'm concerned that would really complicate things if I had to exchange into 4 or 5 properties, any advice ?

Anyway I've been listening to a couple podcasts a day, they seem to nicely fill up the socal commute each way... Great job Josh and Brandon!

Chris.

 Welcome Chris. I Just completed my first turnkey purchase out of state. I live in SoCal too and many people think CA is the only place to invest. The company I used was Norada but there are many others out there. My purchase provided instant positive cash flow per month and had a tenant in place before the rehab was compete. I highly recommend doing your own due diligence but in my opinion there are some great markets outside of Ca that provide great cash on cash return which is what I focus on. I plan on acquiring a few more in the state I bought my first.

Goodluck to you and keep listening to the podcast and post your questions in the forum....people give great feedback constantly!!

Hi - I just reviewed Norada's website today today- do you mind disclosing which state you decided on?   Pros and cons to many of the locations.   I do plan to visit before I buy. I  also liked some of the new construction properties on their website which had positive cash flow.     

BTW,  outside of LoopNet, does anyone know where is a good place to look for larger apt. complexes  (more than 4 units)?

Thanks!

Originally posted by @Julie Shepard :

Hi - I just reviewed Norada's website today today- do you mind disclosing which state you decided on?   Pros and cons to many of the locations.   I do plan to visit before I buy. I  also liked some of the new construction properties on their website which had positive cash flow.     

BTW,  outside of LoopNet, does anyone know where is a good place to look for larger apt. complexes  (more than 4 units)?

Thanks!

 Hey Julie,

I ended up choosing Kansas City specifically the Independence area.

Originally posted by @Chris E. :

Hello there, just joined from Southern California after finding BP doing a 1031 related search on Google.

We have a rental condo in Orange county that's barely paying for itself but had a major appreciation in the last 10 years, so considering doing a 1031 to out of state since CA is really not appealing to us anymore, and avoid capital gain taxes.

I was thinking about Colorado or Pennsylvania, just because that's 2 states we go for family or business on occasion so we know a little bit about the area, but now on BP I discovered you can buy turn-key anywhere in the US. Never heard of turn key until last week!

Through the 1031 we'll have to re-invest in the $350K range. The few turn key i looked up so far seem to be in the $50-100K range. I'm concerned that would really complicate things if I had to exchange into 4 or 5 properties, any advice ?

Anyway I've been listening to a couple podcasts a day, they seem to nicely fill up the socal commute each way... Great job Josh and Brandon!

Chris.

 Hey Chris it seems like the 50-100k is the sweet spot for price to rent ratios for SFRs in decent neighborhoods. Some of the bigger turnkey companies would have multiple units available in multiple cities so you should have no problem locating >350k worth of properties, just make sure you know the company you are working with and tour their rehabs and the neighborhoods they invest in. 

@Chris E.

Welcome to BP!! I am still trying to figure out the 1031 exchange as well...... I got the Solo 401K investing down now it's time for me to learn something new... Let me know how it turns out for you? Good Luck and Happy Investing.

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