****UPDATE**** I sold this property during 2021 for $83,500. After Closing Costs and Realtor fees, our profit was $17,000. We did our first 1031 Exchange with the proceeds from the sale and used the money for a down payment on two new properties. The new properties are 3 bedroom, 1 bath, Single Family Attached (townhome style) that adjoin two other properties that I own. Once rehab is completed, the new properties will rent for $700 each.

I purchased this home from a fellow investor using a Line of Credit from Arkansas Federal Credit Union. 6% amortized for 20 years with a 5 year balloon. They loan up to 80% of ARV. The home appraised for $64,625 and I put an additional $7000 in upgrades. Zillow now says it is worth $79,000. It currently rents for $825. I hope to refinance to a conventional mortgage to get a longer term and better rate. The home is a 3/1 located in the Fair Park neighborhood, just a block north of the University of Arkansas at Little Rock. Rehab included new LVP, new garage door and updates to the kitchen. I use Century 21 Prestige Reality as my property manager.

What made you interested in investing in this type of deal?

This was an older property and I did not update the HVAC when I bought it. I wanted to move the money to a newer property in an area that I through had better prospects of appreciating. The properties that we acquired in the exchange are adjacent to two properties that I already own. With the two new properties, we own 4 of 5 units in the complex. I hope to purchase the remaining property soon.

How did you find this deal and how did you negotiate it?

I had my realtor do the leg work to find the owners of the adjacent units. I had made a previous offer on the units that was rejected, but by adding in the money from the 1031 exchange, I was able in up my offer slightly and still get the properties with enough budget for the rehabs I am planning.

How did you finance this deal?

I purchase properties using a Line of Credit from Arkansas Federal Credit Union. They will loan up to 80% of ARV, including renovation costs. The exchange properties appraised at $77,500 each with my planned upgrades, and I purchased them for $52,500 each. With the $8500 each from the 1031 Exchange, I only needed $46,000 in financing. I plan to spend about $10K each on the rehab so I'll wind up with about $56,000 financed on each. Cashflow should be about $225 per door, or $450 total.

How did you add value to the deal?

I upgraded flooring, paint and made some improvements to the garage of the property that I sold. I am upgrading flooring, paint and countertops in the exchange properties. I am also able to raise the rent in the exchanged properties from 595 per month to $700 per month.

What was the outcome?

I was able to increase my total cash flow from about $212 per month to approximate $450 per month and increase my total equity to about $40,000. This deal also took me into the next bracket (15+ properties) with my property manager so my property management cost dropped from 9% per door to 8% on all my properties. Every little bit helps!

Lessons learned? Challenges?

The 1031 Exchange allowed me to trade up without having to pay capitol gains! The fee for the third party intermediary was about $1000. I don't know if that is a standard rate based on the size of this deal, but since I had only held this property for a short term, I was probably looking at $4000 in Taxes, so it seems like a good deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I used Investment Property Exchange Services, as the intermediary. I continue to use John Belden of Century 21 Prestige Reality as my agent and property manager. I used Quard Brumfield of Pillar and Post as my Home Inspector. Heather Branham at Liberty Title in Cabot Arkansas is my closing agent. People don't always keep the same closing agent, but I have and it has been awesome! Heather makes my life so much easier! She is a awesome member of my team!