New to BP, first time investor, looking for advice from Virginia

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New to BP, first time investor, looking for advice from Virginia

Stephen Wilson
Member since 2020 · 2 posts · 0 votes

Hello everyone, I'm brand new to BP but have been listening to podcasts and reading recommended books on investing for a while now. I am going to be completely candid in this post so I can get some specific help. My family is looking to sell a large commercial property in Florida in the immediate future. We already have a rock star agent for this and the property will likely be selling for roughly of 1.6 mil. This property, for a long time, has not performed well financially and due to this my family is not holding many liquid assets. We will be trying to go the route of a 1031 and are currently looking to reinvest most of the income from this sale in Virginia (we have a piece of residential property there that we plan on moving to). 


The areas that I have been looking into are Norfolk, Richmond, and Roanoke. We would like to purchase a large multi family residence that would have an ROI of around 8-10%. I would like to ask for advice from people who have a history in Virginia and could possibly point me towards areas that would be better than others. Additionally, I seek information regarding agents that could help me find the properties that I am looking for, property managers that could help me understand the demographics of these areas and what would need to be done to reach close to market rents, and, if at all possible, someone who can guide me through this whole process.

I understand this is a lot to ask, and I appreciate any and all advice, but, unfortunately, none of the people that I know personally have done any investing like this or on this scale. I believe I understand the basics of what we are about to embark on but I will always accept help from those who have tread these paths before me. Please feel free to leave me a PM.

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Taylor Hudgins
Real Estate Agent · Member since 2018 · 209 posts · 115 votes
6y

Hi Stephen,

I'm originally from central Virginia and currently live in Virginia Beach.  Richmond, Roanoke, and Norfolk are going to each have their different perks and concerns.

Roanoke is currently up and coming which is great!  The only thing here is that they are in the growing pain phase where businesses are still moving to the area, but rents seem to be on the lower side compared to more populated areas in Richmond and Norfolk.  

Richmond is very spread out with lots of neighboring towns.  Downtown Richmond is pretty condense with lots of multi-family properties available, but each area is going to have it's own character when comes to local businesses, schools, and crime rates.  I'd suggest potentially narrowing down where in Richmond you'd like to search.  Some areas are newer, most of downtown is older.  BUT you could always buy and older multifamily or apartment complex, rehab it, and then force the appreciation to refinance for another one.

Norfolk is fairly similar - just on a much smaller scale.  Norfolk is (generally speaking) an older town with lots of room to grow, but our market is moving FAST.  Someone will have a duplex on the market on Friday and then have 5 offers by Monday.  For property managers, definitely reach out to Patti Robertson at https://www.PMIVirginia.com.  

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  • Dave DeMarinis
    Lender · Santa Rosa, CA · Member since 2017 · 283 posts · 255 votes
    6y

    This could be a great plant of filled with issues. A question and a comment to get started.

    #1 - do you have debt on the commercial building or is it free and clear. Also, how much is your gain and what portion is cap gains vs. depreciation recapture?

    #2 - It sounds like you are going to be tight on operating reserves. and 8 to 10 cap MultiFamily is indicative of significant risk. Risk without reserves is jumping without a parachute. The national average Cap Rate for multifamily is a little over 5.Yes, it is an average but you can roughly equate risk to the multifamily premium.

    There might be some other options that are better for you. Also, if considering a 1031, you should contact a QI (Qualified Intermediary immediately)

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  • Stephen Wilson
    OP
    Member since 2020 · 2 posts · 0 votes
    6y

    The property that is being sold was purchased for about $50k dollars in total 70 years ago. The value of the property was appraised at about $250k when the purchaser died and the property was transferred to the current owner in the family, so we would see capital gains on $1.35 mil of the sales price if sold for 1.6 mil. We fully plan to be going through a QI as we have no experience in this regard.

    As for operating reserves we would like to get it worked out where we can keep 200-400k in reserves. 

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  • Taylor Hudgins
    Real Estate Agent · Member since 2018 · 209 posts · 115 votes
    6y

    Hi Stephen,

    I'm originally from central Virginia and currently live in Virginia Beach.  Richmond, Roanoke, and Norfolk are going to each have their different perks and concerns.

    Roanoke is currently up and coming which is great!  The only thing here is that they are in the growing pain phase where businesses are still moving to the area, but rents seem to be on the lower side compared to more populated areas in Richmond and Norfolk.  

    Richmond is very spread out with lots of neighboring towns.  Downtown Richmond is pretty condense with lots of multi-family properties available, but each area is going to have it's own character when comes to local businesses, schools, and crime rates.  I'd suggest potentially narrowing down where in Richmond you'd like to search.  Some areas are newer, most of downtown is older.  BUT you could always buy and older multifamily or apartment complex, rehab it, and then force the appreciation to refinance for another one.

    Norfolk is fairly similar - just on a much smaller scale.  Norfolk is (generally speaking) an older town with lots of room to grow, but our market is moving FAST.  Someone will have a duplex on the market on Friday and then have 5 offers by Monday.  For property managers, definitely reach out to Patti Robertson at https://www.PMIVirginia.com.  

    4Reply
  • Amira Manley
    Investor · Virginia Beach, VA · Member since 2017 · 17 posts · 2 votes
    6y

    Hi Stephen! 
    As afar as doing 1031 in our market here in Hampton Roads area, Virginia, that will be quite a challenge. You might gonna waste time trying to lockdown that. Most of the good deals are mostly off market and off market for a reason. And personally from experience they can’t definitely do 1031 exchange. 
    depends on how many units, what class and what your criteria, i might be able to help you here. Let me know what are specifically looking for so i can put you on the right direction. 

    Amira Manley 

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  • Dustin MorrisPro Member
    Rental Property Investor · Salem, VA · Member since 2017 · 113 posts · 39 votes
    6y

    Hello Stephen!

    I’m from Roanoke and invest in the area. There are some areas of opportunity and I have some good contacts as far a property management, realtor, etc in the area. Feel free to message me and ill be glad catch up further 

    Dustin Sincerely,

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    6y

    The out-of-town investors whom I've seen purchase in Hampton Roads have largely overpaid and found that out while executing their strategy. I don't know that any have lost their properties, but their performance has been well below pro forma.

    No matter which market you go for, make sure you get well acquainted with it. Block-by-block knowledge. Don't buy sight unseen.

    It's going to come down to your strategy. How long do you plan to hold the property?

    There's a nice 12 unit for sale on N Stafford here in Richmond (it's on Loopnet). Awesome area of town with a lot of rental demand from students and young professionals. I actually lived in this building years ago and looked at purchasing it after I moved out. Good bones, reasonably well taken care off, and off street parking which is a huge commodity in that area. Unfortunately, their $1.9MM asking price is too high if you're looking to buy, add value, and sell within a few years. If you're looking to buy and hold, you may be able to make it work if you can get some price reduction, add some value, and hang on to the property.

    Figure out what strategy you're going to pursue, check out each market, and proceed accordingly. 

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6y

    @Stephen Wilson, as far as the 1031 and need for cash that can be accommodated  very easily.  This is actually a very good time to build in some operating margin into your plan.  It will cost you a little bit in tax but might be well worth it.

    In order to fully defer all tax you need to purchase at least as much as your net sale and use all of the cash proceeds in the next purchases.  So if your net sale is say 1.4 mil (and assuming there is no mortgage for a minute) you'll need to purchase at least 1.4 mil in real estate using all 1.4 of cash.

    If you're projecting a 10 cap (and I do agree with @Dave DeMarinis that's pretty ambitious but it makes for easy math) and want to bank 18% for reserves you would need to carve out $250 K for those reserves.  You can take that money as boot at the closing of the sale (or leave it in the exchange until the end).  But when you take possession of the cash it will be taxable but not affect the rest of your 1031.  So really you need to take that much and enough to pay the resulting tax.

    In your case you would take boot of around $310K ish.  Pay the $60K tax and bank the $250K as operating reserves.

    That would leave you investing around 1.1 mil in producing assets with $250K of reserves and no tax due.  That's not a bad plan.  And can be adjusted to meet your specific plan.

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  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Stephen Wilson - In Richmond or Hampton Roads you can invest the funds in an Opportunity Zone instead of doing a 1031, which is way more advantageous.  I’m not an expert by any means.  There has been a ton written about it that you can find on the web and probably on BP.

    757-472-2547
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  • Dave DeMarinis
    Lender · Santa Rosa, CA · Member since 2017 · 283 posts · 255 votes
    6y

    @Stephen Wilson@Patti Robertson There are a few things to keep in mind for Opportunity Zones.

    1. You are only deferring the tax on the capital gains. That means in 5 to 7 years, you need liquidity to pay those taxes. You should not count on that coming from the OZ investment. 

    2. Depreciation Recapture is not eligible for OZ investment. Unlike a 1031 your depreciation recapture will be due immediately.

    3. If you go to an OZ, you forfeit the potential of continuing to step up the cost basis of the exchanged investment at death ...

    4. The outlook for tax brackets and capital gains rates is murky at best. That gain will likely push into the highest tax bracket and a large increase there and/or less favorable capital gains treatment could be a big stinger.

    5. State income tax is another complication - many possibilities from same treatment as Federal to not eligible in the state to deferring into a state with income tax (where Florida doesn't have it) and all possibilities in between.

    Most importantly, get professional advice and I would grill them on specific OZ knowledge and understanding. It is all new code and changing quickly so there are many CPA's that are confused about it and you don't want one of them advising you.

    Now for the good news, if you make it through the hoops AND your OZ investment is a home run, you will NEVER have to pay taxes on the new gains of the OZ investment itself.


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