SELL or REFI rentals to buy apartment buildings??

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SELL or REFI rentals to buy apartment buildings??

Terrence Williams
Flipper/Rehabber · Tacoma, WA · Member since 2014 · 16 posts · 7 votes
I'm struggling with what to do with this and I'm hoping to get some input from some experienced investors. My goal for this year is to get out of flipping and focus on my rental portfolio. specifically apartment buildings. I need to put a strategic plan together to get going. I have a hand full of rental homes that I owe next to nothing on. The rents that I bring in from them is really really good. I could do a cash out refi to have quite a bit for a dp on a 2 to 3M apartment building but the. I would be making next to nothing on rental where it would seem worth the headache. Selling a few and doing a 1031 was another idea I thought of. Has anyone been down this road that could shed some knowledge on the transition? I feel like my passive income would be much great with the apartment buildings and much easier to manage than the rental homes.
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Jonathan Taylor SmithBusiness Member
Rental Property Investor · Durham / Raleigh (Triangle), NC · Member since 2015 · 841 posts · 803 votes
8y

There is logic to trading up to larger multi-family properties that create an economy of scale. I will be going down this same path and will start to sell off my SFR as it makes sense to acquire larger MFR. I've not done so yet, but my plan is to 1031 Exchange, since that will allow me to capture 100% of the equity to put towards the next purchase whereas refi will get me around 75% at best with not enough remaining cash-flow to make it worth the difference.

Blue Chariot Realty & Management4.915 Reviews
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  • Jonathan Taylor SmithBusiness Member
    Rental Property Investor · Durham / Raleigh (Triangle), NC · Member since 2015 · 841 posts · 803 votes
    8y

    There is logic to trading up to larger multi-family properties that create an economy of scale. I will be going down this same path and will start to sell off my SFR as it makes sense to acquire larger MFR. I've not done so yet, but my plan is to 1031 Exchange, since that will allow me to capture 100% of the equity to put towards the next purchase whereas refi will get me around 75% at best with not enough remaining cash-flow to make it worth the difference.

    Blue Chariot Realty & Management4.915 Reviews
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  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    8y
    Originally posted by @Terrence Williams:
    I'm struggling with what to do with this and I'm hoping to get some input from some experienced investors. My goal for this year is to get out of flipping and focus on my rental portfolio. specifically apartment buildings. I need to put a strategic plan together to get going. I have a hand full of rental homes that I owe next to nothing on. The rents that I bring in from them is really really good. I could do a cash out refi to have quite a bit for a dp on a 2 to 3M apartment building but the. I would be making next to nothing on rental where it would seem worth the headache. Selling a few and doing a 1031 was another idea I thought of. Has anyone been down this road that could shed some knowledge on the transition? I feel like my passive income would be much great with the apartment buildings and much easier to manage than the rental homes.

    Hey Terrance Im a local investor and am familiar with most zipcodes in pierce county let me know if you have any questions about apartments in this area or lending/finance/questions.  

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  • Terrence Williams
    OP
    Flipper/Rehabber · Tacoma, WA · Member since 2014 · 16 posts · 7 votes
    8y

    Albert, I am looking to develop relationships with a few lenders for my deals.  I have had many years of successful flipping and I'm burnt out.  This will likely be my last year with the deals getting so skinny.  I'm going to focus on building my rental portfolio with apartment buildings and from here on out and slowly dumping all of my single family rentals. Getting familiar with running the numbers and recognizing deals is my homework for the week.  If anyone has a apartment building analyzer they could share that would be really helpful. 

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Terrence Williams, What you're contemplating is commonly called a "consolidation exchange".   When you sell several to buy one larger building some dynamics come into play with your 1031.  First you have to pay very close attention to timing deadlines since each sale (unless you sell as a portfolio on one contract) will be it's own exchange.  The most critical time path is going be the time path of the first sale.  

    Second, selling smaller assets in a sellers market is almost always easier than buying a larger asset in a sellers market.  So finding your replacement and getting it under contract even before your first sale with a long due diligence period is a very good plan.  A reverse exchange may also be your friend.

    On the plus side, You can maximize equity use in the new property over a purchase using refi dollars alone.

    The 1031 Investor5140 Reviews
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