Doing a 1031 exchange and looking for new areas to invest for multi family

[Ian Russell]

Hi, I'm selling a multi family in Spokane, Wa and when all is said and done will have about 450,000 dollars that I can do a 1031 exchange with.  The reason I am selling is I think I can get a better return in other areas.  Right now the property brings in 3250 a month so 39,000 a year.  Taxes 4400 a year and insurance about 1200 a year.  I also pay some utilities which are roughly 400 a month.  I net about 2,390 a month.  The duplex is paid off.   I think I can get better numbers else where.  I did some math and I found and area I can buy 3 brand new single family homes for around 200 each and rents are 1650 and they pay all utilities.  These penciled in netting around 3100. So about 700 dollars more a month than my current duplex.  So I am trying to explore other markets.  The west is way to over priced so looking at the south or midwest.   Would love to get some ideas on how to put the 450,000 to work.   I am more into cashflow and dont want to take on a bunch of dept.  thanks. Ian

[Dave Foster]

@Ian Russell, this strategy is what we call a diversification exchange. Diversification exchanges are a good way to grow your RE portfolio using all of the tax you would normally pay.

One way you can mitigate risk is to concentrate your equity and purchase the first property with cash and finance the additional properties. This way, you won't feel overleveraged and will have access to equity outside that 1031 that you can then access whenever you find another good deal. This would allow you to access 75-80% of your equity to put down on another property if you wanted.