All Forum Posts by: Hedy Kromer

You are going to want to narrow down the areas that you wish to invest in before listing the property for sale. Once sold, you will need to place all your profits from sale with an exchange facilitator to handle the upcoming transaction(s). Your Realtor representative can usually provide you with a recommendation for an exchange company.

The IRS states there is a 45 day time limit between the sale of your property and identifying possible replacement properties. After identifying the properties in this time period, your accountant will let the IRS know and then you have 180 days to close on said properties. The title company then works with the facilitators to complete the transaction correctly.

If you don't have already, I would recommend partnering and getting advice from a competent accountant as 1031 exchanges need to be recorded to the IRS correctly, and in a timely manner. They can go into further detail about the different types of properties that can be exchanged and the amount limits.

Keep up the good work!

Thanks Phillip, that's good advice.

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Originally posted by @Joel Owens:

Hi Hedy,

What is the current loan rate on the property? Any pre-pay penalty ?

You could possibly refinance into a lower rate and make it cash flow more and although not pulling out the full 200k usually you can go up to 75%ltv for about 315k new loan.

That is IF the property appraises at your stated new value you think it is worth or higher.

Wouldn't buy turnkeys out of state with newly minted tenants with no track history of payment schedules. You might get more cash flow on paper but more headache and generally less equity growth due to to tenant quality and the area.

As for buying a larger property I would have to see your overall liquidity and net worth to see what makes sense. It sounds like you are looking for more return but want to stay passive.

I have many California clients doing a 1031 but they are exchanging 1 to 3 million in proceeds from selling apartment buildings and buying commercial in other states.

If you could put more money then the 1031 funds to get a larger property more options would be available.

Thanks Joel for your input. No, there's no pre-pay penalty. I refinanced in 2012 & my rate is excellent. When I refinanced, I didn't pull equity out, I just wanted to lower the interest rate. It appraised at $430K at that time. I'm being conservative in my estimate that it's worth about $420K and is probably closer to $450K. I can definitely get at least $200K after closing costs if I sell. The only problem with your suggestion of refinancing to pull equity out for about $315K new loan is that it would no longer cashflow. I'm only getting about $2300/mo in rent. Yes, I'm looking for more return but want to stay passive. Since I don't have 1 to 3 million in proceeds, it sounds like I have very few options on what I can do unless I go out of state. I've tried to explore areas driving distance of Los Angeles, ie Palmdale, Bakersfield, Riverside, San Bernardino, etc, and I'm not finding anything that will cashflow more than $100/mo. Which I feel like what's the point.

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Originally posted by @Account Closed:

Hi Hedy,

Congrats on have the foresight to purchase a home in the area during the crash. As you've seen, it's difficult to find a property in this great state that will cash flow as the prices are a bit out of whack with rents (even though rents are pretty darn high).

Your questions aren't necessarily easy to answer though without knowing more about your financial goals. Do you need maximize your cash flow now or are you wanting to maximize your wealth over time (10 years? 15? More? Etc.). Knowing these things will help determine whether paying all cash or maximizing leverage would be best for you.

If you do decide to switch properties, a 1031 exchange can be a really great way for you to save on taxes. It's something I'd definitely recommend in 95% of call cases.

An out of state turnkey property can be a great investment or a great bust. It really all depends on which company with which you partner. Be sure to do your due diligence on whomever you go with, they will make or break your investment decision.

The leverage question should be asked regardless of whether you go multifamily or SFR (Single Family Rental). You could use leverage the $200k and purchase multiple SFRs in different markets to provide and reap a lot of the same benefits.

Hope that provides a little insight.

Thanks Scott for your reply. I guess I'm more interested in cash flow now instead of maximizing wealth in 10 - 15 years. So does that mean I should use leverage? I'm assuming buying say a 12 unit apartment complex for $800K would cash flow more even with a mortgage than a single family or duplex for $200K even with no mortgage right? However, the apartment complex could require more of my time even with property management in place.

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This is my first post on BP. I’m really on the fence & need some advice.I have a 3 bedroom single family house in Los Angeles, CA that I bought in 2009 right after the crash for $255K.It’s appreciated a lot & I currently have about $200K in equity in the house. It’s worth about $420K & I’m renting it out for $2300/month. Since I got such a bargain on it, it’s cash flowing well so I’ve never thought about selling it. I’m cash flowing about $500/month after all expenses & mortgage. But someone told me those numbers aren’t that great & I should sell it so I can use that equity to buy another property that would cash flow even more.If I do sell it, I guess the only option would be to 1031 exchange it since the capital gains tax would be ridiculous right? The problem is I’m not sure what property to exchange it for.I have a full time job so I was thinking about investing in an out of state turnkey property that is already rehabbed with tenants & property management already in place. The reason I’m thinking out of state is because I’m not finding any properties within driving distance that will cashflow. Here are my questions.

1) Should I 1031 exchange it to use that $200K in equity to buy another property that would cash flow even more?
2) If so, do you think buying an out of state turnkey property is a good idea?If not, what other suggestions do you have?
3) Should I use the $200K to buy all cash for a single family/small multi-family or leverage it as a down payment to buy a larger apartment complex for say $800K?

The only criteria I have is that it’s turnkey with property management in place.I don’t want to worry about rehabbing & placing tenants since I don’t have the time.

4 Votes

All Forum Posts by: Hedy Kromer

Hedy Kromer has started 2 posts and replied 14 times.

Post: 1031 exchange to invest in an out of state Turnkey?

Post: 1031 exchange to invest in an out of state Turnkey?

Post: 1031 exchange to invest in an out of state Turnkey?

Post: 1031 exchange to invest in an out of state Turnkey?