Bought an investment single family new construction with 1031 exchange

[Mohammad Parwez]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $300,000
Cash invested: $75,000

I bought this new SFH as I exited from a duplex property and used the 1031 exchange to put all the proceeds to this new SFH.
By the time I bought this house the interest rates started inching towards 5%.
I got the 30 year mortgage and currently I am paying about 1700/month for mortgage/taxes/insurance and getting a rent of about $2100 per month.
In terms of cash flow it is not that great but the property is appreciating and with the new house there is almost no maintenance.

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

Prior to this I had two duplexes but the property was in C class neighborhood.
I had to deal with difficult tenants and had to evict two times.
I wanted to invest in property to avoid these kind of hassle.
That's the reason I sold them and did a 1031 exchange to put all my gains to the new property and thereby deferring the capital gains taxes.

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

I had a family friend as a realtor but we did find all deals based on the new construction in the area.
Later on I decided to get my own realtor license so that I can look out for the properties for myself in the MLS and save on commissions as well as help others in the similar situation to buy investment properties.
My broker shared the commission as well to cover some closing costs.

How did you finance this deal?

I went for investment loan from a bank after paying 25% down from my previous sales proceeds.
Doing 1031 exchange is a little different than just buying properties. I have experience in dealing with agencies that provide this service.

How did you add value to the deal?

I provided some appliances that were not originally there and increase rent to suffice for that.

What was the outcome?

I have got a good tenant that pays on time every month and has renewed the lease for the second year in a row.

Lessons learned? Challenges?

Leant the nitti gritties of 1031 exchange. It is different as you do not see the money for the property you sold to exchange with like property.
Another lesson was to properly vet the tenant. I called their place of work to verify their income. And of course you perform the regular background check.
- Use move in - move out checklist
- Use standard contract for leasing
- Get information on whether the tenant is an active duty personnel. This helps in case of eviction.

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

Now I have my own license and have the experience. Feel free to reach out to me if you are interested in investing in NC.
This state is investor friendly and you can still get a good deal of properties that can have a good cash flow plus equity growth.
However, getting to the 1% rule is tougher now due to increased interest rate, however, I consider this state a place to invest as there are lot of jobs are moving to this area of triad.