All Forum Posts by: Mark Ferguson

How many times have I heard, "If my property increases in value another $100,000 I'm gonna be losing money!"  AND then, "Well if I knew the rents were gonna jump up I wouldn't have sold!".  Thus the death of the Golden Goose,  ;-)

@Mark Ferguson It almost sounds like your are hoping that your next purchases will not appreciate as much so your rent to value ratios will stay "attractive" for a long long time. That will easily eliminate any of these possible future cross roads. Perhaps Pueblo has your name all over it after all:)

In 2007, at the height of the housing boom, Denver's average home was $254k, while the average income was $60.8k (4.2x).   In 2015, the average income had increased to $69.2k, but the average home increased to $353k (5.1x).   These numbers were sourced from the demographia survey, and feels very bubbly.  Such a huge rise is only sustainable if the government shuts down new construction (ie San Francisco or Manhattan), or there is no space to build (ie LA).  I never saw either of these issues in Denver.

Many posts warning about a Colorado bubble. What those people need to understand is Colorado never ran up from a big decline. Colorado is unique to much of the country in that we whether recessions much better than most. In the great recession we had foreclosures giving investors great opportunities, we had a good supply which gave investors great opportunities, but we didn't have a huge decline in pricing. Where Mark made good was he was able to cherry pick bargains during the recession and after and enjoyed the built in appreciation that individual beat down properties enjoyed. I did the same, however I have no intention of selling off properties in a location that enjoy a recession proof bottom and will only increase in appreciation. 

@Mark Ferguson, Reverse 1031s can be a good answer depending on your situation.  If you're simply looking to exchange your 15 CO rentals for more similar rentals in a better cash flow market the reverse can be a little cumbersome and expensive.  However, if you're wanting to exchange those 15 into fewer but bigger properties, find a large property needing significant improvement, or if you find a piece of land and want to build something on it the reverse can be a great answer.

In a reverse your QI forms an entity called the Exchange Accommodating Titleholder (eat) and it purchases the property (using financing provided or guaranteed by you but lent to the eat) you want and holds it.  The eat then leases the property to you (for exactly the amount of it's mortgage payment) so you can improve it, or build on it until it is worth what you need to absorb the value of your relinquished properties or you sell the properties.  You have an irrevocable option to purchase that property from the eat at a set price so you then complete your 1031 exchange by "buying" the property that the eat is holding for you. So you have still kept to the statutory order of sell then buy.  You're just buying from a different party and the property has been held specifically for you.

The reverse is relatively pricey compared to a straight exchange.  Instead of 700 - 1000 for a straight, a reverse could be several times that.  There are also some very rigorous time lines and documentation requirements to make sure that not only are the IRS regs followed but the client is protected as well.

 Owl Ridge Development on the west side of Greeley. 

@Mark Ferguson,

I have been going through exactly the same process.  I now live in Chicago, so have been slowly migrating my portfolio from Denver, since Denver prices appear unsustainable to me.  Denver salaries have not been keeping pace with property movements, my property values went up 50%, but rents went up 10% over 4 years.  Who knows when the peak will be, but Denver doesn't seem to have any land limitations, or long term Democrat stronghold, so eventually construction should catch up.

Late 2015, I sold $550k worth of property in Denver (after sales/closing costs), which I had $240k equity/ $310k financing.  I was renting the properties for $3325 per month, cash flowing about $200 a month.

I 1031 exchanged that into $860k worth of Chicago B Class property, bringing another $30k of my own money (financing $590k).  I am in the process of investing another $70k in rehab.   My monthly projected rents are in $14k - $15k range cash flowing approximately $5k per month.  I have moved from grossing 7.2% to 18.5% by leaving Denver (and upping my portfolio value, since I had equity locked up).

Now I am considering whether to liquidate my remaining Denver portfolio.  I may be burning some appreciation (or maybe not), but crossing my fingers for appreciation feels riskier than locking in big cash flow.

I wouldn't recommend selling your property unless you have a specific plan.  I had my areas within Chicago selected, and spent 12 months monitoring before I jumped.  Even then, the 45 days of 1031 selection period is very fast.

I totally have to disagree. Again, you own properties that will continue to appreciate in equity and continue to increase cash flow.

Nothing is stopping you from adding to your portfolio of properties in a new location while holding the ones you have, this diversification is safe as you retain what you have while seeing what you can develop elsewhere, worse case is you still own what you have now, best case is over time you prove your current theory correct and then begin transitioning. 

Furthermore  means nothing. Networth is all that counts, and networth is measured by equity. I recommend you chase equity not cash flow, and Colorado has allowed you to do that and will continue to.