1031 into Cash Flowing Property in Different City

[Hansel Akers]

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.

[Dave Foster]

@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).