How one 475K condo turned into $2.75M in Assets in 15 yrs

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1031 Exchange ProcessHi BP, Thanks for reading, I don't have the actual numbers yet on this bldg, I will post when I have the actual expenses:---------------------I also wanted to quickly share my 1031 exchange experience.Like with anything, if you find competent people to work with you the process is very simple.---------------------EDUCATIONIn the beginning, the education period 1031 seemed very daunting. BP was the best source to get the answers bc there are actually people here that have DONE IT. In the real world, my accountant told me to talk to my lawyer! My lawyer told me to talk to the accountant.Both Accountants and Lawyers really only know their "portion" of the transaction.We needed up finding a good QI, Qualified Intermediary. Basically a THIRD PARTY that does 1031 exchange exclusively.We were approached by some very knowledgeable QI on BP. HOWEVER, We decided to go locally and one our lawyer uses because we were exchanging between two states MA to PA. I quickly found the QI in MA don't know about the quirks of PA real estate local laws. I have been through that rodeo, never again.----------------DECISIONS1031 exchange is the exchanges of like asset for another like asset to defer the capital tax.DISCLAIMER: I only know my issues and dilemmasThat basically means any INVESTMENT properties not primary home for us!1. Military Deferment, $500K Capital gain Tax exemption for married coupleFirst, we had to figure out if we QUALIFIED For the TAX exemption! You have to live 2 within the last 5 year.We bought our Boston Condo in 2001. Lived in it for 5 years 2006.We tried to sell it a few time as noted in the background because we wanted to take advantage of the tax exemption. We have Tenant 2006-8, AT THIS POINT we still Qualified 2 of 5 yrs, but the market was really SOFT and we couldn't even sell at 475K2007, my HUSBAND was DEPLOYED to Iraq for 9 months. And we were told by various sources now that our time line is 2 of 10 years. military exemptions (which was in ERROR)This is what we read, but miss understood."If you rented the home to others because you were on "qualified extended duty" with the military you can "suspend" that period of time in the capital gains calculation for "the last five years" timeframe. But, a suspension period can't be more than 10 years." www.military.comSo we ended up Renting again until 2015. Every year we fuss about the military exemption, because we can't get a straight answer. Mostly because we no longer live in a military town and we started to think of holding this FOREVER.I don't remember the exact detail, but the wording on the exact rule, wasn't the 10 yrs we thought, it was no more than 10 yrs, and the amount of time was ACTIVE DEPLOYED TIME. Which for us was only 9 months in Iraq. SO we quickly moved on from this TAX EXEMPTION IDEA2. Replacement Property must be OWNED in the same STRUCTURE as Relinquished Property for Tax PurposesWe owned our Boston Condo under a TRUST. My mother had set that up during the purchase, all four of us, my parents and us, were the beneficiaries. When my mom past we eventually amended the trust beneficiary to just us at 50-50!So this turned out to be a BIG problem, I didn't want to own an investment property with our personal names for liabilities issues. My husband is a physician.Since the TRUST is a pass through tax to both of us individually, our QI, accountant and Lawyer came up with buying under 2 SINGLE MEMBER LLCs. For tax purposes it pass through the exact same way.I think we could have changed the structure, but it required more time and more money (options that weren't our solution, I didn't pursue in detail. please consult your own legal advise)3. What was our Replacement Value?The next issue was WHAT was the amount we had to exchange?Boston Condo:Purchase Price: $475KHELOC balance: $300KSales Price: $850Kas mentioned, my accountant thought it was the Proceeds so we started looking at $530K homes850K-300K= $530KWe quickly realized we had to spend ALL of the $850K or more.Pittsburgh market is about $200K on my avg purchases.I didn't feel like buying 4 single family, or 4 multi unit at ONE time.We toyed with the idea of purchasing in NJ, for a retirement home, and rental for now.but had trouble accepting with the ROI rate. Especially since we only have $530K CASH, we need to TAKE OUT A LOAN for the DIFFERENCEONLY IN AMERICA, you have to SPEND money to SAVE money! I always say....So after much thought, I decided on this commercial unit, that is 5 min from my house.I had properties in 3 STATES, and I am DONE with the LONG DISTANCE LAND-LORDING!---------------------------------------------BOOTWe learnt about boot, basically, you can not receive any money, or cash equivalent back from a 1031 exchange. Any cash back or saving is considered a BOOT, and you have to pay capital gain tax on it.They are:Mortgage Boot: you new mortgage is less than old mortgageCash Boot: any cash equivalent you receive at closing Personal Property Boot: if you receive appliances during sales (???)WE could have bought a house for $530K but we would have to pay $300K as CASH BootWE could have bought multiple home, ask your legal advice on that detail, for timing and process.--------------------------------------------PROCESSOur process was quite simple. I know BEFORE we closed on my boston condo what my replacement property was. BUT I don't know if our offer will be accepted. So we had a list of OTHER possibilities.We complied with the rules, so I don't know the exact times of things1. We Chose our QI in PA2. We CLOSED on the Boston Condo. All Proceed went STRAIGHT to QI, and sits in an escrow account. We had to sign 1031 exchange documents at closing.3. We IDENTIFIED which PROPERTIES we were looking to replace it with. It was a FORMAL FORM, we had 45 days to FIND properties if you don't have one! They don't hold you to it. If the deal falls through, you just go to need one and update the list is my understanding4. Meanwhile, NEGOTATE and get under AGREEMENT with the Replacement Property, QI needs to be informed with everything going on with the 10315. Find LENDER, they need to be informed of the 1031 exchange!6. Create a 2nd LLC for my husband, he didn't have a single member LLC.7. CLOSE on the Replacement (commercial). Prior to Closing we had to release the fund from QI to the closing company. The process is like any other closing except Seller has to sign off on the 1031 exchange.--------------------------------------------------------All in all the most difficult part was the data collection to carve us the right PATH.once we had direction and good people, it was just pulling the trigger and going full speed ahead.Due diligence, knowledgeable contacts makes life easier.The most difficult part of this journey was I had UNREASONABLE BUYER and SELLER ;pEverything else was smooth ;pLESSON: SURROUND yourself with EXPERTS and GOOD RELIABLE KNOWLEDGEABLE ppl

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1031 exchange and $1M bldgI think some of my mom's intuition has rubbed of on me.when we moved to NC, I immediately spotted the area I will definitely buy in. At that time we were poor, we were pay check to pay check for 5 yrs in Boston. I would day dream which properties I would buy and run the numbers in my head.The first commercial happens to be on that street I had my eye on. We happened to have capital and bought it when it hit the market. when we moved to Pittsburgh area, my second commercial was the same way. I said if anything pops up at my price range I'm in.so this bldg was the same. I have my eye on it for the past 5 yrs. its in my 50 yrs plan ;) HA!I told my husband if any of these building goes up for sale, I want it ;) we just laugh it off.----------this year, I found out that all the bldg belong to one 80 yr old seller. all the bldg went up for sale all at once!I was very disappointed bc there is no way we can afford it. I pray it will sit on the market. months rolled by.---------my Boston condo lease is up. my tenant had expressed that they didn't want to renew their lease. My broker from Boston called and said, you know how in 2009 we couldn't even sell for 450k????it's Worth at least $900 maybe $1M if we fixed it!!!I had intended to keep this forever even if it was only 3% CAP. it had sentimental value to me.I told my tenant I may sell, is it OK to show during their tenancy. That's when we realized they were in the market to buy!!!By LUCK, we struck a deal at $850k. I didn't want to fly to Boston to renovate. they lived in the unit for 7yrs. buying as is Cash!!from BP we toyed with the 1031 exchange bc we no longer can qualify for the tax exemption of $500k as married couple.at $850k our HELOC would be paid in full, my duplex will be free and clear.We quickly abandoned the flip idea and within wks put in tenants in the duplex (12% cap free clear) bought 230k, renov 70k, rent $3350/mothat is more than the Boston rental!--------as for the 1031, it was easy to identify the next bldg, because I been eyeing it for 5 yrs.the rest is due diligence and negotiating.but the long and short is:we thought we only had to spend the $530k proceed. No, we were wrong! we had to spend the total sales price $850k to qualify for the 1031exchange.we debated over buying multiple homes or multi units or buying this one.we initially offered 700k for the bldg. but we ended up at $1M bc of the seller. and he sold a unit during our negotiations at $1.2Mits currently 50% occupied. it has been neglected, rents are below market.it needs some TLC.I hope to turn this around to about 10% with leverage.our awesome mortgage broker found us a 15 yr fixed rate for the difference. we just closed, this needs 100k in renovation. this is definitely a long term buy hold strategy. I'm negotiating NNN leases. and the current tenants are wonderful. Hence why I chose this particular bldg among the rest. from a $475k Boston apt, slave to the condo to maintain!my current rental GOI:2nd commercial $1650/moduplex $3350/mo5 mix used $4000/moall free and clear. minus taxes and repairsthis bldg, we borrowed 50% at 4.175% fixed 15 yr loanis 15000 sqft flex space. with 9 electrical meters. it currently set up at 6 units. conservatively I can rent at $12/sqft/yrcurrent GOI: $9000/mo (triple net)CAM & tax: 1200/mo from tenants (aka they pay)mortgage: 4000/mo2% after leverage (bc we have to subsize the vacant side have potential rent GOI is $13000-15000/mobut to do that I need to bring it up to standards. hopefully make 10% with leverage. but we plan to pay of the loan asapthank you for your time!!LESSON: PATIENCE, You make MONEY WHEN YOU BUY

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BACKGROUNDMy story involves a little luck and intuition ;)it begins with my mother ;) I grew up in a very entrepreneurial family. our dinner conversation is always very interesting. my grandfather built and owned factories from scratch. My mom's generation was expected to join the family business. This was back in Asia.My generation in turn also is expected to join and continue. But there is an old saying that most family business can't last more than 3 generation. Its part due to the economic and global change. At my grandfather's last moments in life, he said something to me that resonates even today."I realize at 80 yrs of age, the best investment is when MONEY MAKES MONEY!"He said that he owned factories, it means he buys machines, manage worker, deals with supplier, and global politics! But also worry if there will be a fire, a strike, utility price increases, and how to feed the workers.He said the best investment was when my mother started investing in FX (forex). no strike, or fire. its risky but if you do it right very profitable.-----------My mom is an amazing lady. She took over the business, and ran it well. When she started investing the revenues in FX or real estate, she and my dad decided to invest 10% of their capital into what she does for the family. From there she grow very profitable. She loves real estate, so naturally she bought as many grade A single family homes she can, while my grandfather bought land!my mom wears too many hats and self manage so she believes in low maintenance landlording. Good School, Good tenants, Low turnover. Appreciation play. They bought in different countries, currency plays too.------------------this story doesn't have a happy ending....I saw the FX market take a toll on my mom. she eventually took her own life.I saw my moms generation fall apart after my mom past, she was the pillar and bread earner.I also saw how Real estate saved our family. my mom's rentals practically paid for 3 children formal education and send us to the US for college. Having some money in fixed asset that is also your roof is a good thing when family feud flares.My grandparents real estate as they sold it off has been saving the family. even this week today. LESSON: BUY Right!!! Seek opportunities!!

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Hi Jennifer,I am a realtor in Philadelphia and working on my own REI too. Thank you for sharing your inspiring story and the journey of REI. Looking forward to read more of your sharing.

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Thats great.

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@Bob B. Thank you. I totally forgot I posted this ;)I went on to buy a 12 unit commercial as a result of the 6 unit purchase 2 yrs ago ;). Its currently 60% occupied ;)

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Hi Jennifer. I'm impressed with the way you have make this happen: it's brilliant. Congratulations. Amàlia

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@Jennifer Lee How about an update on your Realestate empire. It's been three years since your post.

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I know this is an old thread, but the story is timeless. I am also in Pittsburgh area and while I have yet to get my first deal, my goal is to get it this year, and reading your story, Jennifer, is inspiring. And so a belated thanks for posting.

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Thank you for sharing your inspirational story with us! Love how your mom made the smart purchase in Boston.