First 1031 Exchange - Looking at a variety of markets
Investor · Washington, DC · Member since 2016 · 14 posts · 7 votes
First 1031 Exchange - Looking at a variety of markets
Most Popular Reply
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2yYou’ll need some details. It sounds like you’re selling for $500k after closing costs? (That’s how much you have to spend. Selling price minus selling costs.). How big a loan will you have to get? (Net selling amount minus all cash you’ll receive from sale that must be reinvested.) are you looking to buy the same price property as you’re selling? (Anothe $500k property?) are you selling a property in CA? (If so they will require you to submit forms every year until you sell so they can collect their state income tax on top of any state income tax where you buy.) Obviously get a QI involved before the sale as early as possible. Your 3 options are 2 of the most restrictive in the country and own of the least. Of them 3 i think most would say AZ. This is your chance to pick a state with no income tax if you wish to avoid that in the future. Good luck.
TLDR: Figure out your net selling price to know the minimum you have to buy. Figure out target price of replacement property. That will help you Figure out how big a loan you’ll have to get unless you plan to add cash. Try to have your replacement property identified if not under contract by selling time. Reach out to someone like @Dave Foster to avoid making a costly mistake.
6 Replies
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes2y
You’ll need some details. It sounds like you’re selling for $500k after closing costs? (That’s how much you have to spend. Selling price minus selling costs.). How big a loan will you have to get? (Net selling amount minus all cash you’ll receive from sale that must be reinvested.) are you looking to buy the same price property as you’re selling? (Anothe $500k property?) are you selling a property in CA? (If so they will require you to submit forms every year until you sell so they can collect their state income tax on top of any state income tax where you buy.) Obviously get a QI involved before the sale as early as possible. Your 3 options are 2 of the most restrictive in the country and own of the least. Of them 3 i think most would say AZ. This is your chance to pick a state with no income tax if you wish to avoid that in the future. Good luck.
TLDR: Figure out your net selling price to know the minimum you have to buy. Figure out target price of replacement property. That will help you Figure out how big a loan you’ll have to get unless you plan to add cash. Try to have your replacement property identified if not under contract by selling time. Reach out to someone like @Dave Foster to avoid making a costly mistake.
- Real Estate Agent · Scottsdale, AZ · Member since 2018 · 412 posts · 366 votes2y
Hi!
Regarding Scottsdale, I know you know the market well. I just hopped on the MLS searching for $500,000 opportunities and there are several 2/2 condos and townhouses, as well as 3/2 townhouses, that can be found in 85251, near Old Town, as well as near the Raintree Corridor in 85260. Both are huge magnets for professionals to rent.
With a condo/TH you'll have to factor in HOA fees, but there are some nice options that would generate higher rents.
I have a California-based BiggerPockets client who purchased 8 homes in one year in the Southwest Valley. He likes that when he can check on all his rentals in one trip. This "economies of scale" approach could work for you, too.
I would also consider the NW Valley, near where TSMC is building its multi-billion-dollar chip plant. That is really the epicenter of growth in Metro Phoenix for the next decade.
Since Metro Phoenix has a healthy inventory of homes in your buy box and interest rates are keeping many buyers on the sidelines, it's a good time to be a buyer in Metro Phoenix.
Hope this helps,
Melanie
- 2yBradley BuxtonBusiness MemberReal Estate Agent · NV · Member since 2023 · 1k+ posts · 715 votes
There are lots of great markets out of CA that you can read about and hear about. Deciding on a market is based on your portfolio structure, goals, and how your lifestyle can manage those assets. If you love an area then it might be a good investment for you. Have a plan and execute on it.
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes2y
I just DM'd you about class ratings of different parts of KC which I am of course partial to. Happy to help.
- 2yEric FernwoodBusiness MemberRealtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes
Hello @Breanna Green,
I recommend first determining your financial goal and then selecting a location that best supports that goal. If your goal is financial freedom, choosing the right location is the most important investment decision you will make because it affects all long-term income aspects, including:
-
Whether rents keep pace with inflation is crucial. If rents don't keep up with inflation, owning multiple properties in such locations won't matter because buying power decreases daily. We live on buying power, not a fixed income. This is evident from price increases every time you go to the store. Unless rent growth outpaces inflation, you will either have to continuously reduce your standard of living or get a job. The best indicator is whether the city has significant and sustained population growth. Wikipedia
-
How long will your income last? Too many people face the nightmare of running out of money during retirement, a time when they are least able to reenter the workforce. Income persistence requires that your tenants remain employed at similar wages. The problem is that all non-government jobs are relatively short-lived. The average life of a company is 10 years. The average life of large corporations, like those on the S&P 500, is only 18 years and falling. So, in the foreseeable future, every non-government job your tenants have will vanish. Unless companies set up new operations in the city creating replacement jobs, all that will remain are lower-paying service sector jobs. Crime is a major factor companies consider when selecting cities for investment; companies are unlikely to set up new operations in high-crime cities. Rank of the top 50 most dangerous US cities.
-
Operating costs. Every dollar you lose to operating costs is a dollar less you have to live on. There are direct costs and indirect costs. The major direct costs are property taxes and insurance. Below is a comparison of average annual property insurance and property taxes for 5 states:
- Texas: average insurance: $2,536, property tax percentage of value: 1.68%
- New York: average insurance: $1,418, property tax percentage of value: 1.40%
- California: average insurance: $1,839, property tax percentage of value: 0.75%
- Nevada: average insurance: $1,144, property tax percentage of value: 0.59%
- Florida: average insurance: $2,207, property tax percentage of value: .91%
To put these costs into perspective, below is a comparison of the annual cost for a $400,000 property.
- Texas: $2,536 + 1.68% x $400,000 ≈ $9,256
- New York: $1,418 + 1.40% x $400,000 ≈ $7,018
- California: $1,839 + .75% x $400,000 ≈ $4,839
- Nevada: $1,144 + .59% x $400,000 ≈ $3,504
- Florida: $2,207 + .91% x $400,000 ≈ $5,847
Sources: Homeowners insurance, state average property taxes
Indirect costs: Rent control is a hidden tax that may limit your ability to select the best tenant, remove a non-performing tenant, and increase rents enough to compensate for inflation. The best source for information is a Google search for the specific city or state.
Breanna, I urge you to not narrow your focus to a city based on your familiarity. Instead, choose a city that best supports your long term financial goal.
FERNWOOD Team, KW VIP Realty520 Reviews -
- Investor · Washington, DC · Member since 2016 · 14 posts · 7 votes2y
Hi Everyone!
I was just able to review all the responses and they are immensely helpful and has given me a lot to think about - thank you so much!
I will ideally find a home that doesn't require a loan and if I need to put an additional $100k I can with cash I have on hand. The cabin I'm selling is in Arizona and I have already contacted a QI to facilitate the sale.
I've heard insurance companies are being really picky but I'm hoping with a condo purchase this won't effect me tot much. I just read many people are leaving New York but besides COVID I feel the city is fairly recession proof (as is DC which is where I have another property but it hasn't really increased in value that much). I'll be heading to LA and SD this weekend to scope out the potential places and areas (no offer on the cabin yet). Agreed re Scottsdale potential especially around Old Town to North Scottsdale (location of my other property) and I would be able to get a bigger space (LA and NY is a studio or 1bd) - I'll make a separate trip but appreciative to hear insights on the current market and what you all would do! Over the next couple weeks I'll take a look more into NY (although more unfamiliar but rental restrictions and high HOA and coop vs condo are hesitation factors for me).
I want to receive about $2k/mo including HOA (didn't take taxes into account for that number). Thanks again everyone, helps to learn from others who are experienced and knowledgable! Any tips or pitfalls to avoid, send my way!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.