1031 Exchange: Small multifamily consolidation into waterfront STR - COVID win

[Andrew Severino]

Investment Info:

Single-family residence buy & hold investment in Fairhope.

Purchase price: $465,000

Understated, "charming Bayfront getaway" with part-time vacation rental history from prior owners who used the property as a 2nd home. We inherited all their furniture and 5 star VRBO reviews as part of the deal.

What made you interested in investing in this type of deal?

After decades of multifamily which has always been my bread and butter, the thought of less units and a waterfront location sounded good. After discovering the the wonderful Mobile Bay community of Fairhope the prior year, the appeal was real. While some consider STRs more management, I've had experience with STRs and knew it wouldn't be problem, also the Fairhope community has a long history of attracting year-round visitors of mostly high quality.

How did you find this deal and how did you negotiate it?

We sold a duplex in an urban Uptown area of New Orleans during Covid at a high price with no concessions. This property was listed. Releveraging eliminated mortgage boot. we financed 100% part of this replacement property (look at the financing section to see how we coupled with an additional replacement property to accomplish this). As part of the agreement we required the seller cooperate with transferring all VRBO reviews and we inherited all furniture and kitchen supplies, etc.

How did you finance this deal?

We sold a duplex for $585,000 and exchanged into this property and another SFR with plans to tear it down, which we did. Title replacement cost between both properties was $730,000, our cash went into the other property and the note for this property was full purchase price. Worked out well.

How did you add value to the deal?

We didn't add much value, ut was already functioning as a part time STR. This was plug and play, prices were rising in this area, not just due to COVID but sue to organic demand for waterfront properties in this specific area. The demand has continued. S truly beautiful and unique area.

What was the outcome?

We sold the other property at for a gain of ~$120,000 after commissions, the bank required we make a healthy principal on this note due to the dual collateral. The loan was modified in ht process lowering our payment significantly, increasing cash flow with cash for my partner and I to take back personally capital gains. WE continue to enjoy owning this high occupancy property.

Lessons learned? Challenges?

Waterfront is always great. When I was in my early 20s my friend's dad who was a physician, not a Real Estate pro once said "you can't go wrong buying waterfront". I think that applies here.