Looking to 1031 my Seattle AREA properties to another state for cash flow and retire

[Jack B.]

In a state with no income tax, I'm getting killed by property taxes of 7K a year for each property. Some would be 10K if I had not sold those year ago.

I'm considering leaving this state, it's a dumpster fire, criminals and tenants have all the rights. We were the only state in the country that allowed people not to pay with no proof they lost their job during COVID, etc.

I noticed the other day that houses of similar size and quality in Fresno, CA sell for 250-300K and property taxes are MUUUCH cheaper. Rents are actually the same as my expensive properties here, which cost 3 times what a comparable house in Fresno costs. But CA has even friendlier tenant laws so they are out....

I'd like to find a state where I can 1031 the rentals and have more cash flow and less expenses, as well as laws that aren't outright theft of my property by the government for years at a time to give free housing to people at my expense...(luckily all my tenants paid, but I hear apartment owners got screwed by the bottom feeders. Apparently SFR has higher caliber tenants).

What cities and areas? Please no Memphis, etc. Florida is also out due to insurance costs. I have considered Nashville area...low taxes, more favorable laws, better cash flow and you still get some appreciation. Maybe not as much as WA, but...

[Bill B.]

You’d have to look all the way to Nevada to have no state income tax, lower property taxes and insurance, no weather related issues and a young property base. I can’t even imagine what a $7k property tax unit looks like.  If I pay $3,200 give or take on a $550k property, and less than $2k on $400k properties, your properties have to be north of $1.1mil each? Swap them for a couple paid off properties here. Heck. You could probably swap for new builds. 

You can compare us to other tax feee states like Texas (even higher property taxes), Florida (insurance and weather), South Dakota (snow? No thanks). Maybe Tennessee? I dunno, never been. Check out Tennessee. 

The good news is with no income tax in your home state or your rental’s state, you’d stay tax free. Unlike those who invest here from California. 

Good luck but don’t take too long. We’re becoming California east and the glory days are almost in the rear view mirror. (Maybe I’ll end up in Tennessee.) Good luck whatever you choose. 

[Jack B.]

Quote from @Bill B.:

You’d have to look all the way to Nevada to have no state income tax, lower property taxes and insurance, no weather related issues and a young property base. I can’t even imagine what a $7k property tax unit looks like.  If I pay $3,200 give or take on a $550k property, and less than $2k on $400k properties, your properties have to be north of $1.1mil each? Swap them for a couple paid off properties here. Heck. You could probably swap for new builds. 

You can compare us to other tax feee states like Texas (even higher property taxes), Florida (insurance and weather), South Dakota (snow? No thanks). Maybe Tennessee? I dunno, never been. Check out Tennessee. 

The good news is with no income tax in your home state or your rental’s state, you’d stay tax free. Unlike those who invest here from California. 

Good luck but don’t take too long. We’re becoming California east and the glory days are almost in the rear view mirror. (Maybe I’ll end up in Tennessee.) Good luck whatever you choose. 

 I almost moved to Vegas in 2017, I even interviewed for a job out there, was flown out for the interview, etc. I didn't get the job and the state turned more and more blue, so I decided against it. At this point though, it has to be better than the west coast. Idaho seems interesting. States with an income tax have lower property taxes normally. Nevada taxes the casinos instead...

My rental income is tax free even in an income tax state, as I show now income due to the expenses and depreciation.

[Bill B.]

Only using quick Google results. So eat life may vary. 

Texas property tax rate 1.6%

Nationwide property tax rate 0.99%

Florida 0.98%

Idaho property tax rate 0.88%

Washington state rate 0.85%

Nevada rate 0.48%

I know people that go to sandpoint Idaho for the summer but I don’t really mind the summers. I’m trying to avoid the winters. It’s the same temperature right now in MN as is it is Vegas. Ok, so maybe that’s a one off but still. I bought a place there on the water for “the summers” but I can’t stand summer there with the humidity and more, and I grew up there. 

Let me know what you find. I shoulda bought in Colorado Springs 5-10 years ago before everyone else. Maybe Reno? That’s closer to you. But you get snow/westher. 

[AJ Exner]

Quote from @Jack B.:

In a state with no income tax, I'm getting killed by property taxes of 7K a year for each property. Some would be 10K if I had not sold those year ago.

I'm considering leaving this state, it's a dumpster fire, criminals and tenants have all the rights. We were the only state in the country that allowed people not to pay with no proof they lost their job during COVID, etc.

I noticed the other day that houses of similar size and quality in Fresno, CA sell for 250-300K and property taxes are MUUUCH cheaper. Rents are actually the same as my expensive properties here, which cost 3 times what a comparable house in Fresno costs. But CA has even friendlier tenant laws so they are out....

I'd like to find a state where I can 1031 the rentals and have more cash flow and less expenses, as well as laws that aren't outright theft of my property by the government for years at a time to give free housing to people at my expense...(luckily all my tenants paid, but I hear apartment owners got screwed by the bottom feeders. Apparently SFR has higher caliber tenants).

What cities and areas? Please no Memphis, etc. Florida is also out due to insurance costs. I have considered Nashville area...low taxes, more favorable laws, better cash flow and you still get some appreciation. Maybe not as much as WA, but...

Hey Jack,

Would be interested to know more specifics of involvement that you would like to have, but I’ve got clients doing good work in Ohio, Alabama, and the Carolinas right now. Ohio and Alabama for low property prices but stabilized rents that cash flow well, while the Carolinas provide some unique areas with higher value homes but rents that have somewhat kept up. 

I would also consider GA, but that market is pretty saturated right now, so it would be hard to really do it effectively in the time frame that a 1031 would require. 

Hope that helps, happy to walk through more details with you if that would be helpful. 

[Cody Fenske]

Hey, I'm from Idaho so I figured I'd chime in. Idaho is incredible and frankly one of the only areas I feel safe investing due to the reasons you mentioned. There is no doubt about it that you can find higher returns in other areas, but I just get nervous about states that protect tenants too much and treat all landlords like they are rich and greedy vampires trying to suck every dime out of the little guy. Coming from a background in California law enforcement to now working as a Realtor in Idaho, I'm always amazed to see the justice system support the landlords here because in California we would just wish you luck and walk away. Im not sure which areas you were looking at in Idaho, but I'm very familiar with my service areas which include the entire panhandle and I'm happy to answer any questions if you want to dig deeper. I'd just warn that you may be disappointed with the returns when comparing us to other states. You are mostly trading out for the piece of mind and the appreciation potential if you came here. Also, important side note, property taxes here are super low generally, not only because the tax rate is low, but Idaho is also a non-disclosure state so the government doesn't get to use data to accurately assess your property and as long as you are wise enough to avoid telling them what you paid, your property will often be assessed far lower than the market value. As a result it's pretty rare for single family home rentals to be taxed more than 2k a year.

[Greg Parker]

Property tax formula for Montgomery, Alabama.

Montgomery county tax estimate formula is: appraised value x 20% (without homestead) x .0365!

[Samuel Diouf]

Hey Jack, 

I think Columbus is a great option to consider. Multiple, billion dollar companies are investing substantial amounts of money into our area, such as Intel, Google, and Amazon. Which in turn will bring plenty of other investors and general business to the market.

[Bradley Buxton]

Quote from @Bill B.:

You’d have to look all the way to Nevada to have no state income tax, lower property taxes and insurance, no weather related issues and a young property base. I can’t even imagine what a $7k property tax unit looks like.  If I pay $3,200 give or take on a $550k property, and less than $2k on $400k properties, your properties have to be north of $1.1mil each? Swap them for a couple paid off properties here. Heck. You could probably swap for new builds. 

You can compare us to other tax feee states like Texas (even higher property taxes), Florida (insurance and weather), South Dakota (snow? No thanks). Maybe Tennessee? I dunno, never been. Check out Tennessee. 

The good news is with no income tax in your home state or your rental’s state, you’d stay tax free. Unlike those who invest here from California. 

Good luck but don’t take too long. We’re becoming California east and the glory days are almost in the rear view mirror. (Maybe I’ll end up in Tennessee.) Good luck whatever you choose. 

Reno,NV is a great area to invest because of the job growth with Tesla, Apple, Google, limited building, landlord friendly, low property taxes, and of course no income tax.  The weather is fairly mild and proximity to CA and recreating.  Happy to connect and share more knowledge.

[Jack B.]

Quote from @Account Closed:

Quote from @Jack B.:

In a state with no income tax, I'm getting killed by property taxes of 7K a year for each property. Some would be 10K if I had not sold those year ago.

I'm considering leaving this state, it's a dumpster fire, criminals and tenants have all the rights. We were the only state in the country that allowed people not to pay with no proof they lost their job during COVID, etc.

I noticed the other day that houses of similar size and quality in Fresno, CA sell for 250-300K and property taxes are MUUUCH cheaper. Rents are actually the same as my expensive properties here, which cost 3 times what a comparable house in Fresno costs. But CA has even friendlier tenant laws so they are out....

I'd like to find a state where I can 1031 the rentals and have more cash flow and less expenses, as well as laws that aren't outright theft of my property by the government for years at a time to give free housing to people at my expense...(luckily all my tenants paid, but I hear apartment owners got screwed by the bottom feeders. Apparently SFR has higher caliber tenants).

What cities and areas? Please no Memphis, etc. Florida is also out due to insurance costs. I have considered Nashville area...low taxes, more favorable laws, better cash flow and you still get some appreciation. Maybe not as much as WA, but...

In WA You also have high gas taxes and high excise taxes. They make up for it. We escaped "in city" Seattle a few years back. we had properties all over the city. Liqudated them all. And, what you say is accurate, chaos reigns supreme.
We made our way to Scottsdale AZ. Wagon train of cash in tow. We had heard rumors that there is Sun in Scottsdale. The rumors are true. Property taxes are much lower and state is landlord friendly. No surprises. I found a little niche of buying "off market" properties and have made scads of cashflow. Anyone who doesn't find great deals in Arizona isn't looking. The profit on this one is $253,417
Click to enlarge

If you find your way down here, we'll have some great Mexican food. Is Azteca still in business in Seattle? That's pretty good Mexican for seafood city. (I'm tired of salmon, except maybe Ivar's or Tillicum Village)

 There are Azteca's around the Seattle area, yeah. But it's so rough now, it's hard to go anywhere without being around sketchy junkies, homeless people on drugs raging, etc. Do you get appreciation down there in Scottsdale? In comparison to Seattle?

[Jack B.]

Quote from @Cody Fenske:

Hey, I'm from Idaho so I figured I'd chime in. Idaho is incredible and frankly one of the only areas I feel safe investing due to the reasons you mentioned. There is no doubt about it that you can find higher returns in other areas, but I just get nervous about states that protect tenants too much and treat all landlords like they are rich and greedy vampires trying to suck every dime out of the little guy. Coming from a background in California law enforcement to now working as a Realtor in Idaho, I'm always amazed to see the justice system support the landlords here because in California we would just wish you luck and walk away. Im not sure which areas you were looking at in Idaho, but I'm very familiar with my service areas which include the entire panhandle and I'm happy to answer any questions if you want to dig deeper. I'd just warn that you may be disappointed with the returns when comparing us to other states. You are mostly trading out for the piece of mind and the appreciation potential if you came here. Also, important side note, property taxes here are super low generally, not only because the tax rate is low, but Idaho is also a non-disclosure state so the government doesn't get to use data to accurately assess your property and as long as you are wise enough to avoid telling them what you paid, your property will often be assessed far lower than the market value. As a result it's pretty rare for single family home rentals to be taxed more than 2k a year.

 I predominately make my money here from appreciation. I'd like to have a balance of appreciation with low property taxes, and cash flow. I like outdoor activities such as overlanding, plinking, etc. Would prefer to live in a like minded area of other independent people. I don't need to live in town for rapid response LE help, but would like to be close enough to town for dating, etc. I like the idea of acreage without neighbors. I would also like to not have to spend a million bucks on a primary residence there, everything here is expensive and I question why I don't cash out and move elsewhere, simplify my life, quit my W2 job, etc. Any suggestions on location in Idaho?

[Cody Fenske]

Yeah, when there is more to consider then the simple cash flow, Idaho is still a beautiful option. If you want to be close enough to people for a social life, near Coeur d'Alene would be the place. Not in Coeur d'Alene because the prices for anything with land sounds like it'd be out of budget, but there are a ton of smaller towns and places in the county that you can easily drive in for the social stuff and still buy something that checks most or all of your boxes at a reasonable price. Also, I think it'd be good to hear the people you want to be surrounded by because that would likely play a role. I can make a guess, but we can take it to private messages to go really in-depth if you want.

[Travis Biziorek]

Jack, have you considered Michigan at all?

I'd say it's middle of the road when it comes to landlord/tenant law. I invest heavily in Detroit and evictions are 3-4 months on average (was faster pre-COVID).

Property taxes are high on a percentage basis but increases are capped at the rate of inflation with a max annual increase of 5%. 

Detroit specifically is going through a big revitalization and there's both cash flow and appreciation to be had. But if Detroit isn't your jam there are other great Michigan markets or even the suburbs that may make sense.

[Julie Garner]

Not Nashville proper.  It's a pit full of the same sort of people you're wanting to leave.  Better luck further south in middle TN.  It's growing quickly.  Just make sure you're nowhere near Memphis.

Columbia, Murfreesboro, Spring Hill are good choices.

[Molly Arnott]

Hey Jack! Have you poked around the Boise Idaho area? We're not too far, have an ENORMOURS WA expat community for all the reasons you mentioned. Unfortunately with the way interest rates are, and purchases prices, single family homes don't really cash flow anymore. But if you're doing 1031's and putting more down were a solid option. We achieve cash flow with multi-unit, a good balance of appreciation, and have some of the landlord friendliest laws around. We own both long term and short term rentals locally after cashing out on CA real estate in 2020 and moving here. Never looked back and the best decision of my life! Reach out if I can help in any way!

[Henry T.]

Congratulations Jack B. on getting out of this hellhole called Seattle. Did I see you mention Fresno? I would think that's going from frying pan to fire. I would stay away from all west coast states. I like the looks of Idaho(Boise) and Arizona(Phoenix) and have friends invested at both. Good luck.  PS, one friend  restarted in Vegas and likes it.

[Graham Craig]

Why not just 1031 into a DST and avoid the management hassles. Graham

[Eric Fernwood]

Hello @Jack B.

You are facing a problem many other investors in Portland, Seattle, and California have faced. It is really hard to make money in a location with high overhead and where you cannot control your own property.

As to where you should invest, it should be determined by your financial goal. If you are like most, your goal is financial freedom. Financial freedom is more than just replacing your existing income. It's about maintaining your current lifestyle for as long as you live. To achieve this, you need passive income that meets three requirements:

• Rents outpace inflation: If rents do not outpace inflation, no matter how many properties you own, you cannot achieve financial freedom because inflation is continuously eroding purchasing power.
• Income persistence: Financial freedom requires that your income lasts throughout your life.
• Income reliability: The rental income must continue, even in bad economic times. Income dependability depends on the tenants who occupy your property.

Rent and price growth are driven by housing demand, which is dependent on population growth. Rents and prices only outpace inflation if the city has significant and sustained population growth.

Income persistence depends on current and future jobs. All private sector jobs are temporary. Unless new companies move into the area and create replacement jobs that pay similar wages and require similar skills, sooner or later, all that will be left are low-paying service sector jobs. As higher-paying jobs vanish, area incomes fall, and city services are cut back. This results in higher crime and lower-quality schools, which causes more people to leave.

What conditions attract new companies to relocate to a city?

• Economic stability. This requires a metro population >1M. Smaller cities tend to be dependent on a single company or market sector. Wikipedia
• Low operating costs: The three most apparent costs for investors are state income taxes, property taxes, and insurance. Tax Foundation, Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage
• Low crime rate: Companies depend on attracting talented workers. Talented workers will not move to a high-crime city. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Low risk of a natural disaster: I frequently read of entire cities devastated by a natural disaster. When a natural disaster hits a city, it destroys jobs, businesses, and homes. This forces people to move to a different city to find work and start over. So, even if your insurance rebuilds your property, there might not be anyone to rent it. Meanwhile, you still have to pay your mortgage, taxes, insurance, and maintenance costs. To avoid this, choose a location with low-cost homeowners insurance, which indicates a lower risk of natural disasters. Insurance - ValuePenguin
• Pro-business environment: Google search
• No rent control of any kind. Rent control is a strong indicator of an intrusive government: Google search.

Income reliability is dependent on the behavioral characteristics and occupations of the tenant segment who occupy your property. To maximize income reliability, your property must be continuously occupied by what I refer to as a reliable tenant. A reliable tenant stays many years, always pays the rent, and takes good care of the property. However, reliable tenants are the exception, not the norm.

At least one tenant segment will have a high concentration of reliable people. You can determine this segment through property manager interviews. If you would like interview questions, let me know.

Once you've identified the segment you want to target for your property, determine where and what they are currently renting. Then, buy similar properties.

We have delivered over 500 investment properties, all selected based on what our target tenant segment is willing and able to rent. This approach maximizes your odds of always having a reliable tenant in your property.

Summary

The image below illustrates the three steps to choose properties that can generate the income needed for financial freedom.

Follow the numbers to achieve financial freedom, not the opinions of others.

[Julie Garner]

404 on the Top100 Dangerous cities.  It's not your bust; they seem to have removed it.  I hit their link from https://www.neighborhoodscout.com/blog/top100safest.  Here's a link to a different site: https://www.visualcapitalist.com/most-dangerous-cities-in-th...

Thanks Eric for a great and informative post!  One to keep.

[Jack B.]

Quote from @Graham Craig:

Why not just 1031 into a DST and avoid the management hassles. Graham

 Low returns, lack of control for 10+ years. Imagine they invested in commercial office space and you lose all your money.