1031 into Larger Multifamily or Multiple 4-Plexes?

[Ara Abrahamian]

I own a 4-plex in Los Angeles and have built up ~$1 million of equity in the property (bought in 2011, at the lows). I'm considering selling the property and exchanging into more units (still in L.A.) but I'm trying to decide between two strategies and would be curious to get others' thoughts.

Option A - Buy 4 fourplexes. With $1mm equity, I can theoretically cut four $250k checks and, with 70% LTV, purchase four $900,000 fourplexes. These would be smaller units or in slightly less optimal submarkets of LA (e.g. North Hollywood vs Burbank), but would leave me with 16 units and $3.6 million of property value.

** I recognize it might be tough to find 4 properties that are actually worth investing in at today's prices, but let's assume we can find them (or be patient enough for opportunities to materialize).

Option B - Buy one larger multifamily (e.g. 12 units) for $3 million (with ~$1 million down payment).

My questions are:

1) Is one option clearly better than the other?

2) For Option A, which assumes standard conforming Fannie/Freddie loans, would it be difficult to quality for 4 residential mortgages within a 12-month time frame? I have generally strong W2 income, but I feel I'll hit up against DTI ratios if I don't have tax returns showing the income from the new properties (which I won't have until ~12 months after closing each property).

3) Is it even possible to get 70% LTV these days on conforming 4-plex deals?

4) Brokers that I'm speaking with (Marcus & Millichap, Colliers) are saying that 4-plexes generally appreciate more per year than larger multifamily. Is this true in your experience?

5) Are there any other concerns / pitfalls I should watch out for as I enter this process aside from the 1031 timing considerations?