Titan Properties USA

Where to invest? This is our million-dollar (okay, $950,000) question and one of the big things we’re wrestling with this month. 

If you’ve been following along, you know that we are staring down a big 1031 exchange in May. We’re selling our Brooklyn condo, which has appreciated a ton, and looking to level up considerably. Last month, we got our sell team in order, and this month, we’re starting to think about where we want to buy. 

But before we get into what’s on tap for February, here’s how we did on our January homework, which centered primarily around getting the sell side locked down.

January To-Dos

Hire our selling agent

This task was perhaps the easiest of the bunch. We reached out to our longtime agent, who has helped us find great tenants for the last 20 years. She has been patiently waiting for us to put our place on the market and has a great track record of sales in our price range in Brooklyn. 

We negotiated a 5% commission. I’m fine with that—this isn’t where I want to make our money; instead, I want her to get this sold lickety-split so we can move on to the buy side.

Get the condo ready

Our agent identified a few areas of the condo that we’ll want to repair before we list. These issues are all at the “handyman” level, so they probably won’t cost us more than $1,000 or so in total to fix.

We’ll be ready to tackle these when our tenants leave at the end of April. Our handyman was originally a referral from our real estate agent.

Build a just-in-case slush fund

We know this: We don’t know what we don’t know. From lost rent to repair costs and beyond, we don’t want to make a bad move because we can’t fund a good one. When we bought our last rental in New Hampshire, the house under appraised (there were zero recent comps in the area), and we were suddenly on the hook for an extra $25,000 cash to make up the difference. Ouch.)

We learned our lesson: We’ve set aside $28,000 as a safety net to take us through this transition.

Use a tax pro

Our current tax professional has a lot of real estate experience (he’s an investor himself) and was easily able to walk us through all the steps of the exchange. He also referred us to a 1031 third party that he used himself in the last 12 months for his own exchange.

Find a 1031 third party

Based on our tax pro’s recommendation, we called a 1031 third-party company. In this type of exchange, the seller is never allowed to take possession of the money from the sale—if they do, they forfeit the tax benefit. To avoid this, you hire an intermediary to keep the money in escrow while you hunt for the property you want to buy. 

They walked us through the process and shared their fees ($1,000). I took the opportunity to talk through our plan with them, asking questions like:

  • What am I forgetting?
  • Who else do I need on the team?
  • What costs am I neglecting to plan for?

Get a lawyer

I’m not sure who ultimately referred me to the lawyer we’re using, but since I ask every person on our sell team for a recommendation, I know it came through a trusted, vetted source. I spoke to him, asked him the same “What is the process?” and “What am I forgetting?” questions, and added his fee to the budget.

Find a mortgage agent

This person will eventually be part of our buy-side team, of course, but before we got too far, I wanted to understand what we could get approved for so we could start (accurately) ideating around our buy box. 

My husband has a solid W-2 job, but I left corporate America and launched my own company a year ago, so I am in 1099 land now, which isn’t ideal for getting loans. The mortgage broker I spoke to confirmed this. It would likely just be my husband the on loan (though we’d both be on the title), and the good news is that we shouldn’t have any issue getting approved for more than we need when the time comes. 

Looking to February

Knowing this, we are able to really get creative with our buy box. Is the best way to leverage our $800,000 in cash to buy one multifamily for $1 million? Or is it to buy two multifamilies for $1 million each and then leverage the remaining $1.2 million? The options are virtually endless as long as they pencil out.

After lining up these team members, we felt relatively confident that our sell-side squad was in good shape. We had a decent sense of the numbers involved and built a financial safety net to help with any surprises.

But where are we going to buy in May? This month, that’s what we’re focused on: Taking a look at markets where properties have good cash flow and figuring out our buy box. 

Here’s the market list we’re starting with:

  1. San Antonio, Texas
  2. Dallas
  3. Cleveland
  4. Jacksonville, Florida
  5. Tampa/St. Pete, Florida

Yes, there are other markets out there where we know we can get a great cash-flowing multifamily, but honestly, you have to start somewhere and not boil the ocean in the process.

From here, we’re going to leverage our network (and BiggerPockets) to find ambitious, investor-friendly agents in each area and start conversations. Since we haven’t invested anywhere this far out of state yet, we can let the great deal be our guide, and if we find something amazing in one of these markets, we will be able to jump. Each of these markets have strengths and weaknesses, and we’re nervous about the insurance situation in Florida, so we’re proceeding with caution.

Next month, I’ll take you through market deep dives, how we’re evaluating where we want to be, and what we want to buy. It’s getting exciting!

This 1031 diary will be a monthly series through 2024, chronicling our journey to a (hopefully) successful and profitable 1031 exchange, kicking off in May. We’ll share everything—all the numbers, the analysis, the good decisions, what we wish we’d done differently, the big mistakes (hopefully not many), and everything in between. 

Got questions? Got advice? What are we missing? Share in the comments below!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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