All Forum Posts by: Noah Lomax

Hi BP Experts!

I recently sold a home in California for $855k, rolling $236k into a 1031 Exchange. I bought a prelacement SFR for $555K, with ~$140k. This leaves me with ~$94k in the account and the need to purchase a property that is worth roughly $300k.

I just found a great property in foreclosure for ~$250k. It needs a complete kitchen reno, both bathrooms replaced, a one new wall, and new flooring throughout. My questions: 

-Do I have to find a 100% match on 1031 or only 95%? Because I'd be in a good position if it's only 95%

-Is the remaining value determined on the purchase price or the appraisal price (It will likely appraise closer to $300k)?

-Do I have any option where I could pay a higher selling price and get a credit directly paid to a contractor for some of the construction? (i.e. there's some damage that will be called out by the inspector)

Thank you for your help!

Noah

New-er Investor

San Diego/Chicago

Hi BP Experts,

I am working with my first 1031 exchange and am looking for some advice.

I sold a property in California for $855k, resulting in a net of $236k in my 1031 exchange account. I have utilized $136k purchasing a SFR for $555k. I just found amazing condo property for $255k. It's 1/2 that used to be a 2/2. Needs cosmetic work (replace all floors, cabinets, vanities, put the wall back in to make 2/2) and has $9k assessment I must pay.

At asking, this leaves me just $50k shy of utilizing my 1031 exchange.

1) do I have to use 100% to avoid paying capital gains?

2) if so, is it based on selling price or appraisal?

3) if selling price and I have to use 100%, are there any ways to creatively (legally) utilize the money (e.g paying a higher price but getting a credit back for the renovation work)?

Thank you in advance for helping this rookie!

Noah

@Julie Williams hi Julie, understand that you’d rather not divulge the rear. Can you share what the crime rates are and how they compare to the local areas? All crime isn’t equal, and people’s tolerance for crime levels differs greatly.

For example, my parents and most of my childhood friends don’t like visiting Chicago or any big city because of “all the crime” as if the whole city is one dangerous neighborhood. However, if the area draws people that are more comfortable with risks or that has comparable risks to the other places they would consider (e.g NYC vs Boston) then it’s a different story. That’s why people are asking the location.

I’m an Airbnb Superhost and have been for four years. I’ve also spent more than a year living in Airbnb’s around the world. I’ve found that if you find a local host forum or reach out to 3-5 hosts in an area with your question, 1-2 are likely to respond. You can ask them about their challenges. There are ways to let people know

That “like any area in gentrification, please be mindful of your surroundings and don’t leave valuables in your car.” The world is full of travel let’s that love to explore areas on the “front edge” before they become too polished, and they typically know the risks. I’m one of them and I have hosted hundreds of them in other areas over the years.

If you have done your homework, the area is rapidly improving, property is appreciating, crime is trending down, and arts/brewery scenes are growing, I’d personally lean in. Let us know what you do!

@Samuel Pavlovcik Looks like there is still a lot of uncertainty. I’ll keep digging. While my ideal would be to find an existing 2 unit and house hack, there are so many people thinking the same that we’ve not found any good deals yet. Thanks for your help!

@Krystle Khoo hi Krystle!

I cannot recommend Melissa Grace and the team at https://rentsimpli.com enough. They are family owned, take huge pride in their work, are very transparent on fees, and go above and beyond to deliver take care of their landlords. Their base fee is 8%, which causes some people to baulk, but they don’t have all the hidden or nickel-and-dime fees. When you do a side-by-side comparison all-up after all of the other fees and maintenance charges from other companies, I’ve found they are very competitive.

I was just on the phone with Melissa today discussing a new property with her. I think you will be very happy with their work.

@Crystal Smith thank you so much for your reply. I’ve read a number of your posts on other threads, and I’ve gleaned a lot already from your input.

In my searching online, Focus Development was one of the first companies that came up in regards to this topic. They had done a write up on the topic ( https://workwithfocus.com/news/the-viability-of-chicagos-proposed-adu-ordinance-and-improvement-through-public-private-partnership/) , but it was from a few months prior to the ordinance passing. Have you or anyone you know worked with architects in the area that specialize in this space?

@Jonathan Klemm thank you for the answer and input. I did read through some of the other threads, and replied to Prashant on one. While several of the threads seemed too old (pre the ordinance passing), he had a more recent reply and seemed to have a good grasp on what was happening. I hope to connect with him. Thanks for the input!

As to why I’d leave San Diego? Tale as old as as time—I fell in love. I originally left the Midwest ten years ago. The right person brought me back. :)

Thank you again!

Prashant, thanks for sharing this break down. I"m currently looking to purchase a SFR in the pilot area with the goal of converting the basement into a gardent unit. Any recommendations of what I should look for specifically to increase my changes of being able to do the conversion and do so affordably so the ROI is there?

Hi Folks,

I'm new to Chicago from San Diego, and trying to quickly wrap my brain around the investment market here. I'm specifically looking at the new ADU ordinance that goes live in May, 2021 and whether that really unlocks potential or still leaves too many loopholes and headaches for this to be a viable option. With multi-families in high demand, I'm looking to purchase a SFR and either a) convert the basement to a garden unit or b) put an ADU on the lot. I am in the process of doing this to a property in California and the ROI is really solid.

I spoke with my partners existing realtor/best friend and he seemed to think the new ordinance doesn't bring any significant change to Chicago and I'm barking up the wrong tree. Digging in online hasn't yieled me a lot of information one way or another. 

What do you think? I'd be grateful for any input or expertise from the local BP community. 

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $610,000
Cash invested: $60,000
Sale price: $860,000

I originally purchased this house to by home. However, work moved me elsewhere right after closing so I immediately flipped it to a short-term rental. After for years of strong cash flow, I dedided I wanted to be more strategic about building a real estate investment portfolio. After mapping out a plan and rennovating the kitchen, I sold the house at the peak of the market using a 1031 Exchange.

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

Initially it was to be my primary residence. When I had to abruptly move for work, I needed a way to pay the mortgage. Traditional rent wouldn't cover it, so I worked at managing as Airbnb from a distance. This required me pouring over how-to's, pricing, cleaning companys vs management companies, etc. It worked out really well, especially in San Diego's market. While it wasn't without its challenges, I couldn't be more grateful for how it worked out. It also gave me my first taste of investing.

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

This is a long story, but here are the highlights. I was a first time home buyer who knew nothing. This led to a painful string of unaccepted offers, learning how to formally fire a realtor, dealing with the legal mess of that, and how my mortgage broker at the time and new realtor saved my skin. To this day, I cannot say enough kind things about Libby Rogers and her team in San Diego. She's trustworthy, knowledgeable, hard working, and total professional.

How did you finance this deal?

Traditional loan

How did you add value to the deal?

I rennovated the kitchen from net profits.

What was the outcome?

4 years of cashflow ~40% higher than my net expenses, a fully-funded rennovation, and sale $40k above asking. I'm currently in escrow on a new property, where I will build an ADU to have two doors on the land. This will yield a higher cash flow than my previously property, be more stable than short-term rentals, and only use half of the profits in exchange fund.

Lessons learned? Challenges?

1. Do your homework--it pays in spades.
2. Be a great landlord--be fair, honest, and generous where you can be.
3. Always be recruting your team. In addition to a great realtor, I now have a mortgage broker, designer, contractor, management company, and handyman that I would trust with my wallet.

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

Yes! Send me a message and I can put you in touch!