Inspired to trade up...questions remain

[Scott Ruppel]

I have a SFH in central Florida with about 100k equity after some recent significant appreciation. it cash flows about 400/mo. After listening to the recent podcast, I'm inspired to trade up to earn a better ROI. I think the process of the 1031 exchange makes sense, but apprehension of the details have me stuck in place. For example, should I have a property under contract before selling mine, or should I sell first? Can I make an offer on an apartment complex contingent on selling my property? Do I line up a property manager before making an offer? How do I conduct an appropriate level of due diligence if I'm buying in an area geographically separate from where I am? I appreciate any insight or lessons learned from the community.

[David Faulkner]

Apartment complex will take longer to buy than a SFR will take to sell, and the PM is key, so I'd say the best order is:

1)Find a great PM through referrals from 3rd parties with no financial interest in making the referal.

2)Find a great deal on a MF in that market with the great PM

3)Sell you SFR, but close on it before you close on the MF

You will be going up in scale and debt and maybe going to a new market which you are less familiar with and don't yet have a verified great team in place, which can mean up in risk ... make sure you are NOT going down in quality, as that will raise risk even further. Bigger is not always better, nor is more cash flow always better, if you have to take on a bunch more risk to get it. Those extra risks might not become readily apparent until the next downturn hits, and by that time it may be too late ... so better to be aware and keep a close eye and consideration ahead of time to the possible extra risks you may be taking on by "trading up". Not saying don't do it, just saying to keep a close eye on the downside risk and make sure you can mitigate it before you get drunk on the upside ROI potential.

Finally, as an alternative, consider cash out refinancing the SFH equity and reinvesting that money instead of selling. If the property is performing well, I'd hate to get rid of it ... if it were under performing and/or a PITA to manage, that'd be a completely different matter.