I’ll have ~ $250,000 from the sell of some properties, plan to do a 1031, and want to maximize cash flow now and ability to scale up to more units soon. What would you do? I realize this is a general question so just looking for thoughts
Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
7y
If your goal is to scale, don't pay 100% for anything. Leverage, leverage, leverage. It will allow you to maximize that dollar. It's not a fun process doing a 1031, but I would try and put it into one larger property.
Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
7y
If your goal is to scale, don't pay 100% for anything. Leverage, leverage, leverage. It will allow you to maximize that dollar. It's not a fun process doing a 1031, but I would try and put it into one larger property.
I'd say a lot depends on your RE goals, interests, time commitment and a field within real estate/asset you want to invest in. You need to figure out if it's MFH, do you want to go commercial or residential; who's going to manage it, what location, etc...
I'd buy as many 4plex properties you can get your hands on. Nothing cash flows better for me than multi family properties.
@steve graves Thanks for the input! I agree, multi family is all I want. 4plex units are high on my list. I appreciate that validation. I live in Utah where everyone thinks their properties are a golden egg worth a fortune, but the numbers do not work on most of the multi families around here so I’ll be looking out of state.
Are their any small apartments for around 1 million for sale?
Account Closed In my area (Utah) there are some but, definitely not with numbers that make any sense at all. I’m not opposed to buying out of state for the right numbers though. Thanks for your input. I will include those type of properties in my search.
If your goal is to scale, don't pay 100% for anything. Leverage, leverage, leverage. It will allow you to maximize that dollar. It's not a fun process doing a 1031, but I would try and put it into one larger property.
@Lucas Miller That makes sense. After considering your comment and looking at some hypothetical numbers, I agree that 20% down on more is better than 100% down on less. Thank you for your thoughts.
I also agree, leveraging a mortgage to acquire multiple properties at the minimum 20% is the way to go.
If we go by the 1% rule, your income will be 5x the amount if you do an all cash deal.
Additionally, your Cash-on-cash return should well exceed standard mortgage rates.
All this, and we have't even considered the tax benefits you'll be getting from your interest payments.
@David Choe Thank you for your input. If I’m reading that right, potential for 5x income if 20% down on multiple deals instead of smaller return on an all cash deal? Makes sense to me and I like it. The tax benefits are definitely a great consideration that I would be missing out on if I pay 100%. Thank you for pointing that out.
I'd say a lot depends on your RE goals, interests, time commitment and a field within real estate/asset you want to invest in. You need to figure out if it's MFH, do you want to go commercial or residential; who's going to manage it, what location, etc...
@Alina Trigub Thank you for your thoughts. Multi family is my jam (hence posting in the multi family discussion board) with a goal of acquiring 40 units over the next 3-5 years. That may be ambitious, but it seems doable with the right effort and the right connections. I am definitely learning a lot from the discussions here and my limited experience with purchasing smaller multi family properties over the last few years. Thanks for your input
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
7y
@Casey C. Even within multifamily, have you decide whether you want to stick to residential route (2-4 units) or take the commercial one (5+ units)
Btw, regardless of which niche you prefer, I think 40 units is pretty doable in the next 3-5 years. Start networking with other MFH investors, especially in your target geographic area(s), read books, listen to podcasts, and then take action.
@Alina Trigub 4 units is my minimum, but would like get some larger properties. I have purchased duplex in the past, but want to take it up a few notches.
How many units do you own and what type of properties do you like? Do prefer your local market or do you invest out of state?
Real Estate Agent · Luray, VA · Member since 2016 · 460 posts · 293 votes
7y
From what you have said in your first comment it sounds like cash flow is your first priority followed by appreciation and ability to scale long term. So, that being said, I would look for a larger property in a good area that gives a decent initial return, and has a strong probability of strong growth in market rents, jobs and population.
Keep in mind that if you are using your own cash, then you are at a strong advantage over the syndicators. You could accept a bit of a lower return up front and you don't have to get paid fees.
4 units is a good start. Plus you can still get residential financing for it! I'm buying through syndications. So, as Gene Trowbridge said in his book, "It's a whole new world". Very good book btw for anyone interested in syndications, written by a securities attorney.
I invest out of state only, as the local market doesn't support investing locally.
Casey, start with your local market and see if it makes sense to invest there.
Specialist · Los Angeles · Member since 2019 · 1 post · 0 votes
7y
I think you are on the right track, go with multi-family and scale up for units and cash flow as much as possible. Don't forget that commercial loans can sometimes require 25-30% of the purchase price as a down-payment, that may determine if you are able to buy in certain markets or if you want to stick with residential over commercial. Be sure to talk to your financial adviser and an exchange specialist before starting your 1031 Exchange. Gaining more knowledge about your 1031 Exchange will help you make the right choice when it comes time to do the buying and selling.
I also agree, leveraging a mortgage to acquire multiple properties at the minimum 20% is the way to go.
If we go by the 1% rule, your income will be 5x the amount if you do an all cash deal.
Additionally, your Cash-on-cash return should well exceed standard mortgage rates.
All this, and we have't even considered the tax benefits you'll be getting from your interest payments.
@David Choe Thank you for your input. If I’m reading that right, potential for 5x income if 20% down on multiple deals instead of smaller return on an all cash deal? Makes sense to me and I like it. The tax benefits are definitely a great consideration that I would be missing out on if I pay 100%. Thank you for pointing that out.
Right, if we're going by the 1% rule:
the $250K(all cash deal) property should give you a $2,500 monthly income with no mortgage payment
the $1.25M(20% or $250k down) property should net you $12,500 monthly income with a mortgage payment of about $4,000, which nets you $8,500.
Obviously, these are very simplified numbers that don't take into account a few other factors which will add to your costs, but leveraging the mortgage will really multiply your returns.