We’ve been very busy. As we move in exciting directions Chapter 1031 Exchangesold the Brooklyn apartment we owned for 20 years and poured the proceeds from the sale into a promising project cash flow As for investment opportunities, there are still more unknowns than knowns. Yes, even to this process. (Want to catch up? Watch where do we start.)
good news? our apartment Fuk! The even better news is that it is attracting interest and we hope to have a contract signed soon.
So what are we going to buy? Good (focused) question.
Last month we learned a lot about our investment types No want to do. just like other things in life, study things you don’t do think It’s equally important to understand what you’re doing.
Whether it’s deep into the heart of Texas
We identified what looked like a great target property in Sherman, Texas, This is Located in a high-growth development path area about an hour north of Dallas interstate highway 75 en route to Oklahoma. The deal has two structuresconsisting of 13 apartments – a mix of studios, one-, and two bedrooms. we did underwritingreviewed the full financial data and found that vacancy rates were low and all tenants were on one-year leases.
With very little leverage, we would net about $4,000 one month Start from day one (with room to grow). hard!
I knew I didn’t want to buy anything I hadn’t seen with my own eyes. (Yes, you can do this sight Out of sight, but we don’t want to. this It was a million dollar investment for us and our first large apartment building. Looking at properties? Or should I check it out first? Each task will cost us approximately $2,000.
exist Recommendations from our agentswe first visited. Looking back, it wasn’t the right decision, but we did have some Astonishing barbecue And had a great night in Texas.
Eventually, things that seemed “fine” to us end up having serious problems once the inspector gets involved – from roof failure to foundation issues to broken sewer lines. (If you smell sewage, make sure Spring for checking sewer lines.
Although we really It was possible to negotiate a lower price to cover these repairs, but we decided they were too much for us to undertake half a continent away, so we walked. Yes, it was a detour that ended up costing $4,000 and a few weeks of time, but it also a Taught us a lot.
what to do?
although us yes concentrated In Texas, we notice in our peripheral vision that cap rates Triple Net (NNN) Leasing is rising. If our goal is about $ per month5,000, After paying off debt, we can generate approximately $4,000 to $4,500 in cash flow from a property valued at $1 million to $1.2 million. For completely passive investing, this is great.
At first we were kind of Rely on NNN because we want to actively gain experience landlordbut now We’ve been through Sherman, Texas, and we know we don’t actually Want to do so many landlord. Wouldn’t that be nice in the stressful, time-pressed environment of 1031? Have some mailbox money? Of course, we might get better returns by investing more aggressively. But a 6% cash return looks pretty good to us.
What is triple net (NNN) leasing?
NNN lease is a commercial lease Where Tenant pays insurance, taxes, and all maintenance and repairs. Within our $1 price range Million-$1.2 millions, these tend to be fast food Location or retail store such as Family Dollar, etc.
The lease is usually about 20 years lengthand them usually There are fixed rent increases every few years. They operate on autopilot for most of the lease period. The danger comes at the end, when you’re in the last five years of the economy rent, In determining whether your tenant will Get up again. If not, it can take a while to find a new tenant (with you shouldering all the costs) – sometimes several years.
you still need to work exist Give your new tenants a renovation budget (we understand that in our range this is around $100,000 to $150,000) to make the space their own. Due to this vulnerability, You often see landlords selling things Property before the clock counts down to the five-year mark.
This month, we will hopefully sign the contract and then the clock will start! get some Any advice for us at this stage of the game? What are your thoughts on NNN leasing?
Our 1031 journey so far:
January: Selling our apartment, get started
February: Put the seller in a good position
March: It is 1031 exchange real worth?
April: Looking for the best deal in a haystack
possible: seller’s last ditch effort
This 1031 Diary will become a monthly series in 2024, documenting our journey to a (hopefully) successful and profitable 1031 exchange starting in May. We’ll share everything – all the data, analysis, good decisions, what we wish we’d done differently, the big mistakes (hopefully not a lot) and everything in between.
Have questions? Any suggestions? What do we lack? Share it in the comments below!
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