Selling land, $1M to invest via 1031, limited time to manage

[Nate Wiger]

Hi all,

First post, but have lurked for years. Amazing community.

I am selling a vacant parcel of land that will yield roughly $1M in proceeds. I am planning to do a 1031 to avoid capital gains.

I have developed several parcels and sold them, rookie land developer, but I know how that all works. I have never had a rental property.

My gut is to find another vacant parcel to improve, but I have coworkers and BP saying that multifamily is bread and butter, and I feel like $1M down could get a quality unit in a good area that would be a good long term play. I’m in San Diego and would be looking locally.

I’m not worried about short term cash flow as luckily I have a stable W-2 job. But this also means I have limited time to deal with tenant problems etc. (I would definitely hire a property manager regardless).

My options:

1. Get another piece of vacant land

2. Get a single large multifamily unit

3. Get multiple smaller units (1031 timelines add complexity)

4. Cash out and do a QOZ for the gains and take my time to find a property

Open to any thoughts. I can make spreadsheets work for any of them, but my question is more about the qualitative aspects, given that I have a day job. Thank you!

[Mark H. Porter]

my two cents …

Don't ever say short-term cash flow doesn't matter - it DOES. You make your money when you buy, not sell! Immediate cash flow pays for the unknowns. Example - I owned a Walgreens that was NNN except for the underground utilities and the retaining pond that had to be cleaned and inspected annually.

Your LTV will change based on the type and class of property. If you're going to buy a Starbucks with a long lease you could buy one worth almost $5MM as it's going to be an 80% LTV but you'll suffer a 4.5% cap rate. Buy a strip mall with a Planet Fitness, Verizon, and Dollar Store and you will have less than $4MM to spend as your LTV will be 75% but your cash flow will be better as you'll be in a 6%+ cap rate. More tenants, though, mean more differences in what CAM is paid.

I’ve done the STNL and I prefer the strip malls.