How best to invest my first 1031 exchange

Question

Hello, I just sold my first investment property that was a LTR in SC. I am rolling over the profits of approx $130k into a 1031 exchange and would like some input as to best way to start investing and scaling my portfolio. My current plan is to buy 2 STR properties and then after year one save and take earnings to invest in additional BRRRR properties to grow my cash to buy mulitifamily units and additional LTR and/or STR properties. I am interested to hear if this is a good plan to start with STR's. I plan to use a 10% down second home loan for the properties. I also would like to know if it would be best to buy 1 property at a higher value with a larger cash flow or the 2 mid range properties with mid-range cash flow to start. I am looking in the Smokey Mountains, Blue Ridge Mountains in GA and properties in FL. Any other market inputs are welcome. My goal is to have 10-12 doors in the next 3-4 years. Any input would be appreciated.

Matthew Irish-Jones · Answer

To quote a US president... "Plans are useless, but planning is indispensable." Your plan is less important than whether you will be able to execute it or not. Going after 6% cash on cash returns with tons of margin for error can be a much better plan than going for 20% cash on cash returns with a complex rehab if you are not ready for it.

In general its a good plan, but make sure you have basic investing principles to make a decision by. For example, when I make a purchase I value location first and foremost as the most important factor, then asset condition. Then cash on cash return as the third factor, but not as important as the first two. I have an internal grading system, but you need to do what works for you.

If I am getting a great location, but a asset in horrible condition, the returns after rehab have to be high for me to take on the risk. If I am not in a great location, I absolutely have to have a great asset with great returns. The further away from A class investments you get the higher your returns have to go.

Mike Williams · Answer

Happy to help if you decide to go to the North Georgia Mountains. I recently did a second-home mortgage for a refinance on a cabin in Ellijay (just south of Blue Ridge) - I signed a document at closing that said I plan to spend at least 14 days/year in the second home. It did not mention income restrictions, but just be sure you read the paperwork to make sure you can commit to the guidelines it sets. Alot depends on the mortgage broker's interpretation of the Fannie/Freddie guidelines.

Anastassia Satchko · Answer

@John Rankin if you would be open to getting a Duplex. I have a .55 acre lot available in Dallas, NC you could flip or keep and do mid term or short-term (Airbnb) rentals. If you're interested, happy to send you more info and discuss.

Chris Davidson · Answer

@John Rankin Rolling it into multiple is a good strategy. I would verify you can do the 10% down second home loans ASAP. Time is key since you just sold and the funds are sitting in escrow. I would put the most cash down on the first property incase you run out of time on the second that way you don't lose the benefits of the 1031.

Just completed a 1031 and we closed on Friday on the subject and Monday on the replacement. Increasing the cashflow and rolling that to do BRRR's will help build equity to leverage out and or 1031 into higher cost properties thus continuing to boost cashflow.

As far as what type of property I would say what is comfortable for you and what makes the numbers right, and what is in more demand in the areas you plan to invest. Higher value doesn't always mean higher cashflow. I would recommend buying properties with solid systems since you will be OOS and also roofs HVAC's and etc... eat up cash and will slow down your BRRR plans.

How best to invest my first 1031 exchange

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