-- Newbie Looking to 1031X a Condo Into Multiple Properties --

[Steve Genna]

Hi Everyone,

Although perhaps taboo nowadays, I started gaining interest in real estate buy and hold transactions via Morris Invest.  My goal was to utilize my current (non-performing) asset to kick-start a strategy for generating passive income for my fiance and I.  Using BP's amazingly detailed forums, I've discovered that utilizing MI would not be a prudent choice.  I'm now researching other vendors, such as roofstock.com, dfy-realestate.com and others.  Below is my plan and my concerns.  Hopefully someone can jump in and provide much needed advise...

What I own:  In 2012 I purchased a 1BR condo in Jersey City that is now worth approximately $380k.  I purchased it for $240k and have $170k left on my mortgage.  The current tenant is paying $1800/mo but between the mortgage, taxes (which just jumped 66%!) and insurance, I'm receiving no cash flow. 

What I planned to do:

Step 1: Start a single-member LLC and transfer the deed (via a quit claim?) to the SMLLC away from me personally.

Step 2: Conduct a 1031 exchange on the property and purchase multiple rental properties (in the 60-90k range)

Step 3: In order to replace the value of my debt, enlist a service like Fund & Grow to get a loan that is 0% for 2 years.

Step 4: Contribute all net proceeds from the rents, plus wedding gift money (assumed to be $50-100k) towards paying off the loan during the first 2 years.

Step 5: Before the 2 years is up (and the 9-18% interest kicks in), take the remaining debt amount out from my 401k to stabilize my debt interest rate to ~6.75%

Step 6: Pay off all debts over years 3-5.

My concerns are;

1) How hard will it be to find multiple properties in the allotted time frame of a 1031X using these services?

2) Am I wasting my time trying to find many B & C type investments when I should find one or two A type investments?

3) Is there a completely different strategy I should focus on given my ability to convert $380k into a better investment than a NJ condo that provides no cash flow?

Any advise, recommended books, articles or professionals to chat with would be greatly appreciated!  I'm currently reading Real Estate Loopholes and have done much research online, but I think it is time to speak to real professionals.  I look forward to utilizing BP more and more and building relationships while sharing my journey with other new investors in the coming years.  

Best,

Steve

[Peter M.]

Wow this is a lot but it seems like you have done a ton of research. My points would be:

Have you ever managed B-C property? Even if you get a PM company you will still need to make sure they are doing their job. I would be very cautious if you are jumping into this especially in the state with the highest property taxes and more tenant friendly laws. 

There are 1031 rules about buying enough assets that equals more than the profit from the initial sale so yes, you may have a hard time locating and selecting enough properties. I have never done one but my dad just finished one and the rules about which you select as possibilities vs what you actually purchase are strict and a little bit prohibitive. 

Another option is to not 1031 this condo and just pay the taxes. That will still give you a good chunk of change that you can take your time with instead of being under the deadline of the 1031. 

If you do put it into an LLC and sell it a bank will be much more willing to work with you on financing it through the LLC since you will have a big chunk of cash. Plus it is good for liability protection.

With that big of a down payment you could look into vacation rentals or commercial property as well but see my first point. 

Another investment to look into is whole/cash value life insurance policies that pay annuities when you reach retirement age. I mention this because I notice your picture with a new baby and because I just did it because it looks like a wise investment. 

Overall you are in a good place it seems and you are taking the time to make sure you do it right so I think you will be just fine. Just don't get stuck in analysis paralysis.