Diversifying a 1031 into out-of-state rentals, Utah, Idaho?

Question

Hello BiggerPockets community!

I am currently helping my family to make a decision regarding moving assets from a 1031 exchange (home was bought in the SF Bay Area over 30 years ago as a primary residence, and later turned into a rental). Needless to say, the capital gains will be massive, hence spreading most of the sale of the home into other rentals.

We have been looking into parts of Utah (near Salt Lake City) and Idaho (near Boise) for sfr's or multifamilies investments and would like to stay in B or A neighborhoods. These areas seem to have good prospective job growth/diversity, low in natural disaster, and good natural resources. Also they are somewhat close to the West Coast (where we reside). I'm hoping to visit these areas soon and was interested if anyone had some insights regarding this rough plan considering our time constraints and where the market is at this time.

We're looking at all-cash, and most likely will not be self-managing (at least for now). Cash-flow is important (hoping 8%+ COC), but the prospect of buy and hold matters. Maybe what we are hoping for is a long-shot regarding the areas we are looking at, so we may be looking to other states.

Thanks,

-Steven W

Jaiden Olsen · Answer

Utah is an excellent market. If you are in need of an excellent property manager, look up Cody Reeder with Reeder Asset Management. http://www.reederproperties.com/.

Good Luck!

-Jaiden

Dave Foster · Answer

@Steven Wertheimer, Looking at your portfolio it looks like you and your parents have made a good diverse run to date.  It looks like you're settling in on a go to strategy and the 1031 exchange will be the perfect tool to move out of that appreciation dependent SF property.  Great thinking.

Of course where you put it is now the $64,000 question.  Once you've arrived as you have there's really no reason to try to dip into the lower demographics to eek out cash flow.  But you'll always be tempted by an ROI that is leverage or lower grade property dependent.  Your returns will generally be lower if you're going all cash and into A and B areas.  I'm a big believer in that transition though and it looks like your family is poised well for it.  When you seek cash flow the  greater the return the greater the risk will be.  And SF and MF returns right at this moment are a little (or a lot) compressed  But stay the course and let the deferred tax be the deal sweetener..  With all cash there's also some debt free passive products that are 1031 compliant but can still get you into the 8s with minimal risk.

Dave Foster · Answer

@Steven Wertheimer, There are three main products that 1031 investors will move assets into when they're looking for a passive or defensive investing posture.  I did a recent podcast on it and will forward to you pm.

The three most popular that qualify for 1031 are DSTs (Delaware Statutory Trusts), TICs (Tenants in Common) and NNN commercial or ground leases.

DSTs require investor accreditation have a longer investment horizon, and typically require some assumption of debt.

TICs give you actual deed to the real estate and are typically debt free.

Both of the above can be bought fractionally.  NNNs are more typically thought of as single owner products.  Varying leases and the ability to purchase with or without debt.

Cherie Orellana · Answer

Utah , Idaho and Nevada are nearby markets for you that have shown great appreciation and I think you are on the right track.  I suggest you watch rentler and join the Utah for rent pages on Facebook to get an idea of what rents are going  for in specific areas.  Murray has really low property taxes and they are pretty lenient on non conforming duplex or mother in law renting. Homes with mother in law apartments typically have a higher return than multi family. Many can be rezoned to multi family as well. You do have to find property management that will work with non confirming though if you are not self managing in the future.

Brad McBride · Answer

For the Sale Lake area rentals contact Steve Theobald at KeyRenters

www.SuperSteveHomes.com

He monitors the SLC market and provides searchable spreadsheets of available rentals. Right now SLC is very competitive so you'll have to do some work to get 8% on A&B's But he can get you there, if anyone can.

Account Closed · Answer

@Steven Wertheimer, best of luck to you.  My [unsolicited] advice?  Do your homework and make sure the people around you in this process can get things done.  All too often, unfortunately, 1031 exchanges feel undue stress and pressure and bad decisions follow.  Your QI, real estate agent, and title company can, and hopefully will, make this process turn long-lasting returns.  Best of luck to you!!

Steven Wertheimer · Answer

Thanks @Spencer Taylor, I can see how 1031's can lead to some hasty decisions. I still have a lot of homework to do!

Steven Wertheimer · Answer

@Dave Foster Very helpful Dave, thank you! I will be looking into those options.

Steven Wertheimer · Answer

Thanks @Cherie Orellana , that is some great info. I'll be looking into Murray and rentler. I've heard things about Ogden, Bluffdale, Eagle Mountain as well and curious if anyone has opinions on those areas.

Steven Wertheimer · Answer

@Brad McBride 8% return is seeming more like a long-shot, I've been becoming more aware of this every day it seems! Thanks, I will most likely get ahold of him if/when we decide on the Salt Lake City area.

Diversifying a 1031 into out-of-state rentals, Utah, Idaho?

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