We have invested in real estate over the past 8 years here in California (Los Angeles area) so we have benefited by the booming market with a large gain of equity. Right now we have a few duplexes and several single family residencies (SFR).
I was thinking of selling one of the SFR homes and putting the money into an apartment building (4-12 units) I know that homes in Southern California have boomed in the past few years. Would now be a good time to cash out some of these SFRs and put the money into apartment buildings? My reasoning is based on an assumption that SFRs have been inflated a lot more than larger unit investments like apartment buildings. Also, I know that apartment building prices are usually based more on their net operating income than on CMAs which SFRs are usually based on. Is there a way to find out the selling price of SFRs vs Apartments (based on # of units)?
Details.
If we were to sell one of the SFRs we would do a 1031 exchange and avoid any taxing on the gain at the sales then put that equity into a 4-10 unit property.
What do you all think? Is now a good time to do it? Have Apartment Buildings appreciated slower than SFRs?
Thanks
Brian
I do not have your answer for SFR vrs apartments. Your real estate commission may be able to help you see trends in your market.
I recently bought and fixed and sold a 31 unit building to a Ca investor who was selling a SFR there and doing a 1031. You may look at doing a similar move. The area where he is is actually the most undervalued in the nation. I know of 50 units for $1,000,000. Try to find that in La.
I am now working on a 30,000 foot office warehouse building for $165,000. The land under it is worth that much. The way I do deals I do not care where the market goes because I made my money going in and doing the rehab and do not rely on just inflation if I decide to keep the property.
I bought a 5 plex once here in Austin for $5000 plus back taxes of about $10,000. It needed gutting and complete rehab but it was still a good deal. Those deals are gone here too but not to $1.3 million. WOW I am sure the rent is less than $5000 per month too. Where do you go from there?
I’m in S Calif too. We have single family and small apartments. First if you buy more than a 4 unit it is considered comercial and the loans are different.
Our appartments out did the single family with both cash flow and equity. We bought in 95-96 for $220,000 and now it is worth 800,000-900,000! Personally, I think now is the wrong time to buy unless you can get a great price. Read my blog to see the deals we got with an REO and short sale properties. One we bought was from an investor that wanted to retire. This was the last of 36 properties he had. We offered to just assume his loan and pay all cost. He went for it. He paid $385,000 for this 5 unit building and the loan amount was $221,000. Great deal!
We have thought ablout 1031 exchanges too but again I think the market is just too high. We won’t buy more than 25 miles from us because we do all maintanence.
One more thing,
We bought that rental house in 1988 for $117,500. The market value now is $375,000-400,000. We just got a new tenant so now we are finally making about $1000 per month flow. Our appartments netted a cash flow of $1200 from the start with only 5% down. They are now netting double and triple that.