Single Family Investment Into a 1031 exchange to a multi-unit building

      About a year ago I decided it was time to sell my first and only single family rental that I purchased around 2011.  My wife, whom is very supportive, was there when I purchased it.  She is a bit more sentimental than I am, and advised against selling the first home we lived in.  We had only lived there for about a year, and then purchased our current primary residence shortly after.  I knew where I wanted to go with the proceeds of the sale, and I knew that selling the property to invest in others was the only option.  In turn, I purchased a multi unit apartment building and it turned into a crazier experience than I imagined.

I could not perform a cash out refinance of this property as most people suggested because I had only purchased it through FHA, 3.5% down.  If I had attempted to cash out refinance, I could only refinance 75% loan to value (LTV), which would have taken the majority of the equity I had, and I would have been left with little to invest.  Enter a 1031 Exchange; the mind blowing idea.

I decided that the best move was to sell this property and move the equity through a 1031 exchange into my new multi unit building.  I listed my property in July of 2017, and within 2 weeks, had multiple offers, and entered escrow.  To say we had a 30-day escrow would be too good to be true story, so we didnt go that route, not by choice.  After 3 different escrows, we close November of 2017.  

During my search for an exchange property within the incredible short time that the IRS gives you to choose your next properties during their tax-free grace period, I came across a property I fell in love with.  No kidding , I wanted this property, I needed this property, and how everyone tells you, don't let your emotions get involved.  I did.

I knew not to let my emotions get the best of me, just as I sold my first home, but there was something special about this one. 

The nitty "greedy":

The property was listed for 675k and all 4-units were renting at 1100 each.  I wanted it at this price, and I would have offered asking price, if I didn't know better.  I offer 625k.  They come back at 660, I come up to 640, we settle at 655k.  

Enter Escrow:

The property was listed "as-is", which means i could ask for any repairs.  Even if i did, the property was owned by four owners, and any response took at least a week, if I was lucky.  I did not bother asking for any repairs.  I did a full inspection and I knew what I was getting into, which is obviously highly recommended.

Here's the fun part.  The appraisal came back at 595k.  5-9-5-k!  Keep in mind I was already set to purchase at 675k, and I saw this as an opportunity.  I pushed the envelope and countered back down to 585k.  

A week later, I got notification that the owners were pulling out, mainly for this reason : "We don't know why the appraisal came in so low..."etc etc "We would like to withdraw from this sale agreement especially since notifications had already been sent out to raise the rents $100 per unit on January 2018; We would consider 635k, but if not we will withdraw from this sale"

OK, maybe a ploy, but since I was already interested in this property at the list price, I'm very interested at an additional 400/m.  

I accept at 635k, but with an additional 45 day escrow to accumulate the funds since i have to cover over appraisal.  Of course, they countered, saying 630k and 15 day escrow.  I accept, with some creative financing.

After crunching some ideas with my mortgage broker and realtor, my realtor agrees to diminish all of his commission, down to nearly zero in order for this deal to close (he does this due to the fact that I was about to refinance my primary to purchase a few more props through him).

We finally get to closing mid December with all docs requested, including the current tenants deposits and such.  

After closing, I communicate with tenants that I am the new owner, and I am rolling over all previous communications, including maintaining deposits, current lease agreements, and more importantly, the raised rent increase per unit!

Each unit obliged, and each tenant was happy to move forward.  It is now mid march, and each unit pays on time with the newly signed lease agreements.  I have so far invested around 10k to fix some safety issues including the exterior stairs leading to the upstairs units, 4 electrical panel tune ups and pipe hydro-jetting.  All in all, with updated windows and window frames, total renovation costs will be around 30k.