Is this a good idea?

[Matthew Terry]

Hello BP Mates,

I have a SF rental in Mesa, AZ currently occupied until next October and will have around $120k in equity by that time. CAP rate and R:V is not great, but appreciation is fantastic.

I was thinking of selling and using the capital to buy 4 or 5 rental properties in a market where updated $80K houses at 1% R:V in good neighborhoods exist, like (but not limited to) Memphis, Kansas City, or Huntsville. I would buy all properties in the same market to maximize efficiency. I understand appreciation doesnt compare to Phoenix market. I was thinking of doing a 1031 exchange. 

Right now I'm collecting around $3600 in cash flow from my Mesa property. My analysis suggests I could potentially triple that with my proposed strategy. 

Am I thinking straight here?

[Account Closed]

Originally posted by @Matthew Terry:

Hello BP Mates,

I have a SF rental in Mesa, AZ currently occupied until next October and will have around $120k in equity by that time. CAP rate and R:V is not great, but appreciation is fantastic.

I was thinking of selling and using the capital to buy 4 or 5 rental properties in a market where updated $80K houses at 1% R:V in good neighborhoods exist, like (but not limited to) Memphis, Kansas City, or Huntsville. I would buy all properties in the same market to maximize efficiency. I understand appreciation doesnt compare to Phoenix market. I was thinking of doing a 1031 exchange. 

Right now I'm collecting around $3600 in cash flow from my Mesa property. My analysis suggests I could potentially triple that with my proposed strategy. 

Am I thinking straight here?

I'm trying to follow the math. It looks like this is nearly 10 months away. I agree that values are going up in Mesa and in Arizona in general, but I'm reluctant to place an exact number on what will happen over the next 10 months. If you will have $120,000 in equity, I have to assume if you sell you will have realtor fees and other closing costs, plus you will need to give notice to your tenants and generally allow for 90 days to close. That of course eats into your actual dollars to invest.

 But, using your numbers, "$120,000 gets you 4 or 5 houses". That would mean you are taking out loans to buy them or buying four $30,000 homes. That doesn't sound too appealing in those cities. It's would be like owning rentals in So. Phoenix or worse and you'd be a flight away to deal with problems. You could take out a needle and stab your big toe and get the same satisfaction. Not at all to my liking.

I think you'd be better off refinancing the property (borrowed money is not taxed), keep the cash flow and possible appreciation and use the proceeds to invest. I personally like Mesa and Glendale and Phoenix and Austin and Dallas and San Antonio. Solid markets with good growth and people who can actually afford to pay rent. Here is a spreadsheet to that idea:

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Whatever you decide to do, you have some time to think it through first.