All Forum Posts by: Todd Young

I'm ready for my first "Big" 1031 exchange. I've done several 1 for 1 exchanges, trading a SFR for a triplex or a duplex for a fourplex. But now I'm wanting to up my game, upgrade my clientele and get a 30-50 unit complex. This is uncharted territory for me so I would love some advice from people who have done this.

Here's what I'm selling - I have a portfolio of duplexes triplexes and fourplexes - 7 of them that I'm ready to sell. They are all value-add plays that I've improved, and increased income. They are mostly in the Everett area of Washington with one in Marysville one in Seattle. I've had two different residential multifam realtors give me CMAs for each property and the portfolio is worth about $6.3mil, of which I should net about $2.6Mil for my down payment. 

So far, I've had a couple commercial brokers out scouting around looking for a deal for me in the 30-50 unit range in South Snohomish County in the $5mil - $10mil range. So far they haven't found one and I'm getting conflicting advice from the brokers about how to go about this. 

One says I should wait until I have my replacement property identified - since that could take a while - and then list the small properties once i'm under contract, making the deal contingent on the sale of those properties. I'm pretty comfortable with this tactic. as I'm nervous about running up against my 45 day identification deadline.  

One says I should list my 7 properties as a package deal, I might net a little less (5-10%) but the benefit of closing everything at once and being able to snag a deal on an upleg is worth it. Furthermore he says I should market and sell my properties first without having any replacement identified because no seller is going to take me serious, or want to tie up their property with a buyer's selling contingency. 

When I did a 1 for 1 exchange it has always been kindof easy, I was usually able to find a buyer and a replacement property at the same time it seemed. But this twist of trying to sell 7 properties is tricky and stressing me out! 

What have you done? Have you sold multiple properties to exchange into a larger one? If so, did you list and sell your properties first or wait until you identified a replacement? Did you sell your portfolio as a package? Or am I better off listing them individually?

Thanks! Todd

@Zach Quick No, they haven’t given notice, but long term I don’t think keeping this property status quo is the right thing. I want to add value one way or another. My research indicates that the going price for commercial is about $1 per foot per month. So, I may need to double or triple the size of this to get the gains I want.

I recently purchased a 10-unit mixed-use property on the main street (State Ave) in Marysville WA. I feel very good about the investment and I have a lot of good ideas on how to add value to the apartments. However, I'm at a bit of a loss for the commercial space. It's a 600 SF rectangular single-story space with a nice frontage to the street, and a 60's design. Research indicates that about 25K cars per day drive by the space.  

The nail salon that was there for several years moved out not long before the purchase and a barber shop moved in just before closing. The rent is $1,000 per month, The barber shop is on a one year lease, and I doubt it will survive the Covid crisis since they still hadn't opened their doors prior to the shut-down. Also there are about 6 other barber shops within two blocks. Down the street two blocks there are major new tenants like Jimmy John's, MOD pizza, Walgreens, etc. 

What can I do with this space? There's plenty of room for parking. I can expand the parking next to the building if needed simply by installing a fence across the property. I'm open to all ideas including renovation, expanding, tear down, etc. I want to get the income on this to be at least $2K per month if not $3K. Also, tips on how to market to attract the right type of business would be helpful. The prior PM found the barbers by putting a For Rent sign in the window. 

Thanks ! I’ll try them 

I'm working on upgrading a three story home that the city considers a SFR into a triplex. Prior owner two owners back turned it into a triplex without permits and now I get to make it all legit. I have approved plans from an architect. I'm looking for someone in Western WA who can install my commercial fire sprinkler system in Everett. I've reached out to a few contractors but everyone I talk to is too busy, not interested or crazy expensive (probably because they are too busy and not interested).

Any recommendations or referrals?

Thanks, Todd

The most important elements in being a good landlord is to be fair, honest, straightforward in your communication, set clear expectations and follow through with promises and/or consequences when expectations aren’t met. Deal with maintenance issues thoroughly and in a timely manner and your tenants  will love you. None of those traits are age-dependent. They can be learned and practiced with discipline. If you are already like that then you already have what it takes. I work with high school students and some of them already have the character traits it takes to be a good landlord/manager/parent. Many have the seed and need experience to let it grow. Being a landlord at a young age is a fine place to develop and learn. 

I've been working with my son who is/will be in a similar situation. He is 16 and works at Starbucks as a barista. His goal is to buy his first income property when he turns 18. We went to a banker and he asked what it will take to buy his first property. Here's what he learned. He will need 2 years experience in the same field. So for you, that may mean keeping your food service industry work history. Start working 40-60 hours, be a bartender or a waiter as was suggested, and increase your income so you can save and get some capital. For him, it means continuing as a barista until he has two tax returns from Starbucks. He also needs cash. We figured to buy a property in Seattle metro he needs about 3% of the purchase price which is about $12K. So he is saving as much as he can and doing side jobs - he's hustling. When he turns 18 he will hit the foreclosure auction looking for anything multi-family. If one pencils he will buy it with a hard money loan. That $12K will go to pay the auction company's 3% commission.  He will rehab the place with a credit card. Then, he will place renters and recapture as much of his $12K as he can with first/last/deposit. Then he will go to the banker for a refinance. The banker told us if the property is cash flow positive then he doesn't need to have hardly any personal income. Since he already owns it he is already an investor. Since he will buy it at auction for at least 30% less than what it will appraise at when he refis, there will be no money due to the new bank. He will need to have cash reserves for the bank to give him a loan, hence the money recaptured from new tenants. After he refinances with a 30 year fixed conforming loan, he will have a cash-flowing property and can pay back his credit card in a year or so. Rinse and repeat next year. There are risks, like an overly-expensive rehab or a low appraisal with cash due at refi, but his dad will be walking with him and could potentially bail him out with a low-interest loan if needed. :) 

This approach is how I built my portfolio early on. Buying properties at auction for almost zero down is definitely the way to go. The banks seem to have relieved the debt-to-income ratio requirement (or at least my new bank has) and now your cash-flowing property can basically get it's own loan regardless of your personal income. So, even food industry workers can be smart and hustle and buy an income property. 

Thanks for this wealth of knowledge! My main concern with transferring property or purchasing new property for my son while he is 17 is keeping the mortgage off my credit record and taxes. If I don't do that then it really isn't his it's just another one of my properties. 

If I consign for him on a mortgage won't it appear on my credit report? It probably won't appear on my taxes as the 1098 would be filed by the bank for him, not me, right? 

Regarding the trust account, would property transferred to a revocable (or irrevocable) trust still show up on my credit report as a mortgage liability if I'm the trustee? And, I assume the trust pays taxes on the income not me, which means another tax return separate from both mine and my sons, right? 

Todd

OK, well other than getting him legally emancipated he probably will have to wait until he is 18. 

He will have a job but likely won't be able to afford a mortgage. What are his options for purchasing? 

Hello investors, I have a question about how to help my son purchase his first property. He is very ambitious and has watched how real estate investing has allowed me to become financially independent. He's hooked and wants to jump in. I typically purchase properties at auction either using my own cash or hard money. Then by refinancing I'm able to get the property for only the cost of rehab plus any realtor commission. A few times by collecting first, last and a deposit from my tenants I pay back all the rehab expenses as well. My son has been working hard and has enough capital saved up to buy his first rental using that BRRR method. My question is, how can he do it at age 17? He wants to use the income to put himself through college. We want it to be truly his property from a tax perspective and mortgage perspective. I can front him a short term hard money loan but I can't get another conforming mortgage. We live in Washington state. Anyone have any creative ideas? Todd Young