Buy one or two properties with proceeds of 1031

[Tom Albares]

We are closing on the sale of a condo we own at the end of the month.  The condo was used for several years as a short term rental.  The proceeds are $140,000.  The condo sold for $375,000.

We could take the entire $140,000 and put it towards a single family home to be used as a long term rental, and get an interest rate around 7.5%.  It would have to be a home just barely worth $375,000 or greater, and would hopefully cash flow.

Or we could go for two single family homes, less expensive, and put $70,000 down on each.  We could target homes more in the $300k - $325k range.  Still, at least 20% down on each home.  

These would be in an appreciating area, so cash flow will be low. 

Would you please give me your opinion?

Also, in this metro area, new construction homes from all of the big builders are being sold complete with all appliances and blinds for less than resales.  Home owners have not reacted to the down turn in pricing as fast as the new home builders.  With that in mind, would you target a new construction spec built home over a more expensive resale?

[Benjamin Aaker]

Generally, more units will give better economy of scale. It's hard to tell you to go one way or the other as the data is so limited here. It's concerning about the new build prices being lower than resales. There doesn't seem to be any incentive to buy when you eventually want to sell. Further, it would seem like the resale price would be going down soon and it would be better to wait (though I understand you have a 1031 timeline).

That statement might make you think I'd go with new construction, but that's not my niche. I look for value-add opportunities and there won't be much with new. I would continue looking in the market as good deals do still exist for those willing to do the work. Just don't let the 1031 push you into making a bad deal.