All Forum Posts by: Andrey Y.

AM bump

 Thanks Jay.

For the standard syndications, it sounds like you would need at least $500K-$1M in your 1031 for them to entertain you as sizable partner in a syndication (I believe a fraction becomes a TIC interest), but alas, my deferred funds are rather small so doesn't look like that is an option.

I'm looking to use leverage so either it would be a property with say 25% down, or this DST thing. Or maybe some other partnership.. any ideas? Was trying to get away from being a landlord but obviously doing a 1031 was a no brainer and all of the sale proceeds would have went to paying taxes if I didn't..

 Roger. Will get to it in a bit.

The two companies I am considering for purchasing a Turnkey property (both are big names in the industry)

- JWB

- Mid South Home Buyers

JWB would likely be one $200K or two $140K properties in Jacksonville. Mid South would be two properties in Memphis, TN. If we are looking at $65K properties, that around 3 of them that can be purchased! (hmm..)

I am hoping to get some feedback on how I should consider investing the proceeds of the 1031 exchange. Options being either the DST route or the Turnkey route.

@Brian Burke @Account Closed

I value everyone's feedback and I appreciate your input on this. Given the deadline extension, this feels like its dragging a bit and I want to make a decision NLT 15 June. Because I would have to get under contract BEFORE 15 July ideally (if I choose the Turnkey route)

Good news! The deadline to identify a new property for the 1031 was extended to July 15th! In light of the Covid-16 concerns. I guess them seem to like this date :P

You need to use at least the same amount of equity AND at least the same amount of debt for the new real estate you will 1031 into. I was around a 77% LTV because of the very recent refinance.

The way the DST option was presented to me:

- Half of the 1031 proceeds would have to go into a high debt DST, which is relatively uncommon. Most DSTs are around 60-65% LTV at the most. This was a international insurance company office deal. It would throw off exactly $0 in income and all the generated cash would be used to aggressively pay off the principal on the loan. I wouldn't expect more than a 5-6% IRR long term on this.

- The other half of the DST would go into a asset class of my choice. The ones that were presented were:

    - Student housing - Umm.. this is a "no!" given the current situation - Self storage (couple options) - Dialysis centers (couple sets of dialysis centers)

I would estimate that this half of the investment would generate a 8-11% IRR long term. Not too excited but the DST investment is totally passive.

The alternative would be to purchase a Turnkey asset (1 or 2 properties). As passive as "actively investing in real estate" gets, I presume. I told myself around 2018 that I would never purchase another rental again! I was convinced it would all be syndications from here on out..

Lets talk about the only time I lost money on a real estate deal. I know, I know @Jay Hinrichs - if I lost money only once, I haven't been doing it long enough..! ;)

https://www.biggerpockets.com/forums/311/topics/656274-growth-equity-group-how-170-investors-were-scammed

The details are in the link above. I will spare the details. Growth Equity Group is a predatory company (now dissolved but practicing the same thing under other names), who have been involved in many lawsuits. I have talked to more than 4 people on the phone who have lost six figures individually by getting involved with GEG. The details are in my OP in the above link.

The only other time I purchased a "Turnkey" property, was a property in Little Rock, which I still own and my feeling on it is; "Meh.." That sums it up, I again paid about $10-15K above market value, but I am very happy with the management team on board. This property throws off ~$300 in "cash flow", property half of which will be left over after future CapEx.

I started to research about Delaware Statutory Trusts (DSTs). This would be my only option for the 1031 proceeds if I wanted a "hands-off" passive investment, as opposed to buying a property that I would be actively involved in, even if I hired a PM.

For the last 6 weeks since my property sold, I was SET that I would invest in one or two deals in a DST and be done with it. Lately.. I was starting to have 2nd thoughts.

The first 1031 exchange deadline is to IDENTIFY the property or properties to exchange into. This is normally 45 calendar days from the day you sell your RE.

I was managing my rentals in Hawaii from abroad for many years now, with few hiccups except for this. I have also started investing heavily in private placement syndications since around 2017 which have been great investments. No management headache AT ALL and a small time to vet the sponsor up front.

I paid a contractor around $2000 to touch up a few things and paint the entire place. I was ready to sell. I believe this was early 70s construction, and most of the unit was in original condition. I had already made several multiples of my initial DP in PROFIT (not to be confused with "cash flow"), so it was time to exit.

We listed the property around Feb. 2020, and two weeks later we were in escrow. Whew! We closed escrow around April.

I decided to do a 1031 exchange. Since I have done two cash out refinances, most of the profit was already realized tax-free. Therefore, the from the ~$52K in proceeds from the sale, roughly ALL of it would have gone to pay Hawaii state and Federal capital gains tax. So doing a 1031 was a no-brainer.

Now, it was and is time for me to decide what to do with the proceeds.

Around December of 2018 / January of 2019, I got a new tenant. Let me add that I was always self managing my rental portfolio in HI. This tenant was placed either by my boots on the ground or parents, I forgot.

Throughout the rest of 2019, it was clear that these particular tenants were getting further and further behind on rent, and were going to be in trouble. They paid late every single month, and their church paid at least 3 of the months in 2019 by October.

I knew that this wasn't going to end well. Basically I wasn't on the island and I had sporadic help. By early November, I was on the phone with several attorneys about what I should do and how to proceed with eviction. These tenants did not respond to ~80% of our communication, and the rest they maybe responded to 1-2 weeks later.

Long story short, I got partial rent for October and no rent for December. The tenants vacated the property on Dec 24th, one day before Christmas Day.

Lets start with a backstory.

Around early 2014, I purchased my first property immediately intended for an investment in Oahu, Hawaii. I put down $50K and got a 0% loan from a family member for $100K (paid around $150K cash).

I immediately did my first cash out refi at an appraised value around $185K. This gave me around $135K cash out which enabled me to re-coup most of my DP and loan amount. This property always cash flowed at >$500 per month after PITI, and condo fees around $400. Additional maintenance was minimal at 2-3% of gross rents.

I did my 2nd cash out refi around early 2019 at an appraised value of of ~$290K. Mortgage balance at this point was around $113K, which gave about $80K in tax free cash out. Property still "cash flowed" and life was good.

Please expand on this.