Investment Recommendations, 1031 exchange
Grant DodgePro Member
Member since 2023 · 3 posts · 0 votesInvestment Recommendations, 1031 exchange
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes@Grant Dodge You've identified the "why" of selling, so now it's really just a spreadsheet exercise for you to see which path provides the best cash-on-cash return. But I would caution you to consider several other elements beyond cash-on-cash. I've seen many investors get caught chasing monthly NOI to their peril when one capital expense, problem tenant, or long vacancy eats up years of cash flow in an instant. You want consistency in retirement, not maximization. It's really the same issue as with equities - In retirement, you don't chase the highest returns. You chase as high a return as you can get while minimizing risk.
When you start your exchange, you do have another 45 days, of course, to identify your new property. But If you can't find a property you really like, dont submit your list and let your exchange die on day 46. There's no penalty for not completing your exchange; you would just pay the tax like you normally would. And that acts just like a Roth conversion - you pay tax now, but the rest of the money becomes tax-free.
The 1031 Investor5134 Reviews
6 Replies
- 1wArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 904 votes
Quote from @Grant Dodge:
I know this is a loaded question and responses will be all over the place but looking for any and all recommendations. We currently have an STR property at a lake that we are under contract to sell and will be doing a 1031 exchange. Will have about $600K in cash and $1m in sale value. The primary focus of the 1031 exchange will be to maximize cash on cash return for income as we are about to retire. We live in the Hampton Roads area of VA but open to out of state purchases.
I've been doing so much research I think I have paralysis by analysis at this point! I've been looking between commercial properties, multiple LTR's and STR's. We aren't new to LTR/STR rentals, we have 2 other LTR's and have been doing the STR for 6 years so comfortable with it. Any and all real estate recommendations welcome for maximizing the cash on cash return!
With $600K to deploy and income being the priority, I'd seriously look at small-to-large multifamily in the Midwest before jumping into commercial or another STR. Ohio in particular has some markets where you can still find strong cash flow and reasonable purchase prices, and going out of state is much easier when you have the right local team. At this stage, I'd focus on simple, boring properties that produce consistent income rather than adding more complexity.
- Member since 2023 · 3 posts · 0 votes1w
Thanks, yes that has been also in my searches as well. Never got into Multifamily before but it looks promising even with the ones in our local area.
- 1wDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Grant Dodge You've identified the "why" of selling, so now it's really just a spreadsheet exercise for you to see which path provides the best cash-on-cash return. But I would caution you to consider several other elements beyond cash-on-cash. I've seen many investors get caught chasing monthly NOI to their peril when one capital expense, problem tenant, or long vacancy eats up years of cash flow in an instant. You want consistency in retirement, not maximization. It's really the same issue as with equities - In retirement, you don't chase the highest returns. You chase as high a return as you can get while minimizing risk.
When you start your exchange, you do have another 45 days, of course, to identify your new property. But If you can't find a property you really like, dont submit your list and let your exchange die on day 46. There's no penalty for not completing your exchange; you would just pay the tax like you normally would. And that acts just like a Roth conversion - you pay tax now, but the rest of the money becomes tax-free.
The 1031 Investor5134 Reviews - 1wGregory AcsPro MemberLender · MD · Member since 2025 · 133 posts · 52 votes
With your experience in both LTRs and STRs, I think the biggest question is less about the property type and more about the overall investment strategy. Since your goal is maximizing cash flow in retirement, I'd compare not only projected returns but also financing, management intensity, reserves, and how each option performs if the market softens. Sometimes the investment with the highest projected return isn't the one that provides the most reliable income over the long term.
Since you're doing a 1031 exchange, I'd also make sure your financing strategy aligns with your replacement property and retirement goals before you close. If you'd like to compare different financing structures or run through a few scenarios, I'd be happy to help.
- 1wEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 991 posts · 1k+ votes
Hello Grant,
Since you are about to retire, I believe building a reliable monthly paycheck that lasts 20–40 years and grows faster than inflation is very important. Being open to investing out of state gives you more options. Your home city may not support your goal. There’s a lot to cover when I discuss working toward this goal (in fact, I am writing a book about achieving it using data-driven strategies). So I will be brief with each topic below. Feel free to hit me if you want more detail on any of these topics.
To build the income you need, focus on four things:
Rents that grow faster than inflation.
Reliable rent checks every month.
Long-term income that can help build generational wealth.
Low operating costs so you keep more to live on.
Rents that Grow Faster than Inflation
Start with the city. Rent (and price) growth depends on the city, not just the property.
Think of the city as a harbor and rents as boats. Population growth and rising demand can lift rents across the market. When the population falls, rents may decline or fail to keep pace with inflation.
That’s why I put city selection ahead of property selection. Even a good property faces limits set by the market around it.
Select a city:
With a metro population above 1 million.
With significant and sustained population growth.
Low property taxes and insurance costs.
These are (part of the) characteristics that are likely to attract employers (meaning jobs) and residents.
Income Reliability
If you plan to live on rental income, you need rent you can count on, good times or bad. This depends on the tenant who occupies the property. Properties don’t pay rent. Tenants do.
Keeping your property occupied by tenants who stay for years and pay on time is critical. Interview property managers to learn which property types and locations attract those tenants, then buy similar properties.
Long-term Income
The city also determines this. The conditions behind a city’s sustained population growth usually develop over many years of policies and legislation. Cities have momentum. Like a supertanker, they tend to change direction slowly. That momentum can help a city that performs well today stay on course for the foreseeable future.
Since prices tend to move ahead of rents, a multi-year slowdown in appreciation or a population decline may give you two to five years of warning to move your investment elsewhere.
Low Operating Costs
Every dollar you spend on operating costs leaves you less to live on. The tables below compare property taxes and homeowners insurance for a $400,000 rental property.
Here are the sources for the data used in the following tables:
Five highest-cost states:
Rank
State
Insurance
Property Tax
Total Annual Operating Cost
1
Florida
$10,996
$3,120 (0.78%)
$14,116
2
Nebraska
$4,370
$5,760 (1.44%)
$10,130
3
Illinois
$2,133
$7,520 (1.88%)
$9,653
4
Texas
$3,694
$5,600 (1.40%)
$9,294
5
New Jersey
$1,337
$7,520 (1.88%)
$8,857
Five lowest-cost states:
Rank
State
Insurance
Property Tax
Total Annual Operating Cost
46
Nevada
$1,350
$2,000 (0.50%)
$3,350
47
Wyoming
$1,208
$2,120 (0.53%)
$3,328
48
Delaware
$1,091
$2,160 (0.54%)
$3,251
49
Utah
$1,137
$1,920 (0.48%)
$3,057
50
Hawaii
$601
$1,160 (0.29%)
$1,761
Using these figures, a Florida property would need to generate $10,766 (or $897/Mo) more than a similar property in Nevada just to cover Florida's higher operating costs.
Remote Investing
Remote investing works with an experienced local team. We’ve helped over 170 clients acquire more than 600 investment properties. Fewer than 10 of those clients were local; the rest live in other states or countries.
Your 1031 Exchange
For a one-to-multiple 1031 exchange, I’d look for a team that has handled that type of exchange many times. We’ve completed over 90 1031 exchanges, including many one-to-multiple exchanges. Last month we closed a one-to-six exchange, and this month we’re working on a three-to-one exchange.
Pay close attention to the rules, because mistakes can invalidate an exchange. A checklist can help you track the requirements. DM me if you’d like our 17-point checklist.
Grant, I hope this helps.
FERNWOOD Team, KW VIP Realty520 Reviews - Member since 2023 · 3 posts · 0 votes22h
Thanks for all the replies, and great information. I'm knocking out alot of research and spreadsheet exercises to figure out the best option. I had the notifications going to SPAM folder and just fixed that!
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