1031 into Cash Flowing Property in Different City

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1031 into Cash Flowing Property in Different City

Hansel Akers
Realtor · Philadelphia, PA · Member since 2017 · 16 posts · 12 votes

Investment Info:

Townhouse buy & hold investment in Lancaster.

Purchase price: $165,000
Cash invested: $35,000

Sold condo in Reston, VA and used a 1031 exchange to purchase SFH townhome in Lancaster, PA.

Current property is being rented for $1725.
Mortgage $825 p/m. Includes Prop Taxes of $150 p/m.
$95 landlord insurance.
Assuming 5% vacancy rate.
$100-150 p/m maintenance (conservative)

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

Cash Flow margins much larger than previous property

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

I used a Real Estate agent to locate and negotiate (MLS). I now have my own real estate license to locate and negotiate deals.

How did you finance this deal?

20% down payment, all funds except $5K were from 1031 exchange. "True" cost ~$5-7K.

How did you add value to the deal?

This property was basically move in ready. I added a new dryer to the property and replaced a ceiling fan. Other than that, I just prepped the property for renters: shovels, lawn mower, fire extinguisher, trash cans, etc.

What was the outcome?

Great property for cash flowing! Great margins, relatively low maintenance thus far.

Lessons learned? Challenges?

Buy lower, rehab myself. 1031 was super smooth and easy!

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

I did all of the work for this deal although I used an agent.

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Most Popular Reply

Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
5y

@Ika Sargeant, You're going to have to pick a poison.  The best time to sell and start a 1031 exchange (a sellers market) is also the worst time to find and buy a good replacement.  Conversely, the worst time to sell and start a 1031 exchange (a buyers market) is also the best time to find and buy a replacement.  

So there's always going to be something not to your advantage.  the key is knowing what your up against and adjusting accordingly.  In your case the ways to beat a sellers market in a 1031 can include:

1. Sell your property with a floating closing date that will accommodate a potential 1031 exchange.

2. Go into contract on your replacement before you close the sale of your old property.

3. Use contingencies and long due diligence periods at every opportunity.  

4. have a couple off market options that a friendly investor would be willing to sell.

4. Think about a reverse exchange (you control but down' own the replacement property until your old property closes).

The 1031 Investor5137 Reviews
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  • Ika Sargeant
    Real Estate Agent · Reston, VA · Member since 2017 · 295 posts · 163 votes
    5y

    @Hansel Akers its hard to cash flow in our market. I am interested in doing the 1031 exchange but fearful meeting the deadlines. How did you find the timing? Might be easy going into a market with more inventory.

    0Reply
  • Hansel Akers
    OP
    Realtor · Philadelphia, PA · Member since 2017 · 16 posts · 12 votes
    5y

    Ika,

    I was just as stressed going in and was relieved at how much easier the process was than it sounded.  Don't be discouraged. 

    I would suggest acting quickly after you sell the investment property.  That way you don't even have to identify the 3 like-kind properties and commit to closing on one of those.

    To give you an idea of what I did:  I sold my condo around the end of June and while I was wrapping up the closing process for that property, I started really looking hard at some properties in the new location.  Once the other property sold, I was ready to put an offer in on some of those properties that checked all my boxes and were still available. 

    The property that was still available hit all my numbers (1% rule, turn-key, location, low property taxes but great school district - rare I know!).  So I put an offer in on that place one week after I sold my previous property.  Since that offer was accepted, I didn't have to take any of the "additional" steps of declaring the 3 properties and didn't have to adhere to the 90 day timelines that are set forth. 

    My 1031 company and they took care of all the hard legal stuff.  They spun up the bank account, deposited the funds and communicated directly with both closing tables and wired funds both ways.   Best part - the 1031 costs are tax deductible!   

    My other suggestion, don't lose closing on the first home you love by trying to split hairs on a couple thousand dollars (which in this climate is like $2-3 higher monthly payment per $1K increase in sales price).  Put in a strong but fair offer and you won't have to worry about deadlines or declaring target properties or anything like that. 

    I know that was a lot of info, advice, suggestions.  I am happy to answer any other questions you may have.  Feel free to reach out directly!

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Ika Sargeant, You're going to have to pick a poison.  The best time to sell and start a 1031 exchange (a sellers market) is also the worst time to find and buy a good replacement.  Conversely, the worst time to sell and start a 1031 exchange (a buyers market) is also the best time to find and buy a replacement.  

    So there's always going to be something not to your advantage.  the key is knowing what your up against and adjusting accordingly.  In your case the ways to beat a sellers market in a 1031 can include:

    1. Sell your property with a floating closing date that will accommodate a potential 1031 exchange.

    2. Go into contract on your replacement before you close the sale of your old property.

    3. Use contingencies and long due diligence periods at every opportunity.  

    4. have a couple off market options that a friendly investor would be willing to sell.

    4. Think about a reverse exchange (you control but down' own the replacement property until your old property closes).

    The 1031 Investor5137 Reviews
    WebsiteView Page
    2Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    5y
    Originally posted by @Ika Sargeant:

    @Hansel Akers its hard to cash flow in our market. I am interested in doing the 1031 exchange but fearful meeting the deadlines. How did you find the timing? Might be easy going into a market with more inventory.

    A great way is to sell in a super hot market that you have a good amount of equity in is to then 1031 exchange into a more affordable market like the Midwest. I am partial to Kansas City of course but it is an option. 

    0Reply
  • Ika Sargeant
    Real Estate Agent · Reston, VA · Member since 2017 · 295 posts · 163 votes
    5y

    @Hansel Akers and @Dave Foster and @Alex Olson; Thank you for that feedback. Dave you are right about this conundrum. I am still itching about catching this seller's market. Its truly hard to believe. Sellers are getting greedier by the hour and I want to jump in the fray. 

    0Reply
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