Movin' on up, asset protection, etc

[Dave Lawrence]

Good morning BP-ers. Long-time lurker, first time poster. I love the generosity and expertise of this site!

I own three OOS investment properties, all SFH. I purchased "Property 1" in 2013 for $135K w/o doing any meaningful analysis, and got kinda lucky. I financed with a 15-year note. It cash flows, but barely. On the plus side, it's been vacant for all of about 10 days in the 3 1/2 years I've owned it, and no CAPEX to date. Currently, comps in the complex are going for about $200K. I have $55K remaining on the note, so call it $140K in equity. Current lease expires June 30.

I’m thinking about 1031-ing this property to capture some of the appreciation it's seen, and to take better advantage of leverage (rent increases have not kept pace with home value increases in this area). I was inspired by Swanny’s post from a few weeks back. There are a couple of MFH possibilities I’m considering:

1) a quad, potentially with some deferred maintenance. Current tenants are under-paying, but 4th and final tenants rights expire June 1. With a pro forma cap rate of about 7.5% (using very conservative projections with the BP rent calculator and with an excel spreadsheet that I now use when vetting investment deals), it should cash-flow at about $430/mo. Downside—if this was the only property I’d be doing with the 1031, I wouldn’t be taking much advantage of leveraging. Assuming I sell Property 1 for $195K and buy this quad for $220K, I’d only be financing $80K.

2) an 8-plex, new roof w/i the last 7 years. Priced at approx $570K, listing indicates that it’s fully occupied at market rates. Pro forma cap of 6%, CoCR 7.7%, cash flows of $900/mo (assuming I put $140K down via 1031 and finance the rest)

Other details: I have not yet formed any LLCs or land trusts, etc. for any of my properties, though I do have an umbrella. I am thinking I should form an LLC, then prepare a grant deed for Property 1 and transfer the title from myself to my newly formed LLC before initiating and 1031 actions. Will I have to secure commercial loan for an 8-plex? Will the sizable equity from Property 1 enable me to get a commercial loan? Obvs, I know very little about commercial.

And what's the best way forward for the other two properties in my portfolio (which I've held for less than a year): land trust, then LLC? I want to avoid triggering due on sales, but also want to keep my powder dry.