4 Things - Part 2: Time is of the essence

⏱ Time is of the essence

👀 Looking at our last transaction in hindsight, I think we conducted ourselves as if I had more time than was appropriate. The 1031 Exchange deadline is definitely the most unforgiving and immovable deadline I have experienced.

⛔ No holidays, no weekends, the 45 day identification period does not care.

💡 My initial take: Ideally we want to do as much property search work prior to the sale of our Relinquished Property.

🎬 In practice, this has been unfruitful, especially in a competitive market. I've needed significantly more time to close or a longer due diligence period to ensure we sell the Relinquished Property successfully.

🔎 Then we enter the 45 day identification period, in my opinion the most stressful part of the process.

🎯 My goal has been to have LOIs submitted and feedback received on all 3 identified properties. Ideally having one of the properties under contract by the end of the 45 day time frame.

After the 45 day identification period, the destiny of the exchange looks a lot clearer. Now we have 135 days to close one of the deals.

⏱ Sounds like a lot of time…don't waste a single day.

In our most recent exchange, we exited the 45 day identification period without a signed letter of intent, this was not ideal. The 135 day deadline was not our first concern.

Little did we know that we would not get the first deal under contract for another 45 days

📄 Reflecting on this, I think a big time sink was our overly complicated PSA. In our experience, it's not uncommon for a seller's legal counsel to take a week for each redlined response. As the typical incidental delays stack on top of this it can add up to a lot of time before signing a contract.

🤷‍♂️ With 90 days remaining, we felt that we still had ample time to close a deal. At this point negotiations had materialized with 2 of our identified properties.

⛏As we dug deeper into each of the deals, we built out detailed timelines to closing and searched for the Critical Path. We found that 1 of the properties had serious time risk. The Critical Path was the debt assumption and the timeline for this spanned through the holidays. Investigating further, we found out the assumption would take longer than the original 60 days we were quoted.

⤴ This risk steered us to the property we eventually closed on.

☝ Tip: Establish the mission critical dates upfront and enter them into a calendar, excel is fantastic at doing date math. Don’t be recalculating dates every week on your phone calculator when you can’t remember the deadline (I have been guilty of this). Check out the link to Critical Path Method below. This can help set priorities for any project.

📅 We closed our last exchange with 4 days to spare.

It's interesting to consider how differently you value each day depending on its proximity to the deadline

4 Things we learned from our 1st two 1MM+ 1031 Exchanges - Part 1: Deeply Consider the Asset You Are Exchanging Into.

In the 2nd exchange, the properties available on the market that fit our exchange criteria looked very different. The considerations below helped us make a decision.

❓Here are some of the questions we asked ourselves

- How sustainable is the current use of the asset we are buying?
- How sustainable is the physical condition of the asset we are buying?
- How hard is it to sell the asset we are buying?

I prefer a longer term outlook for a 1031 exchange asset. I would rather not expose the gain that I just deferred to taxation again so we put more weight on the first two bullet points in the hopes of exchanging into a property that has a higher cap rate with the tradeoff that it may be harder to sell in the future.

Some features that make the properties we chose harder to sell:
🏢Greater than 3 stories
⬆Elevators
🚰Pumps 
👨‍🔧Large Diameter Pressurized Piping
❄Commercial Grade HVAC
🏗Repair work involving Scaffolding/Cranes

These features are capital intensive and require sophisticated management to maintain but we have experienced a smaller market of buyers for properties like this which have allowed us to get better pricing. Additionally, buyer competition on your 3 identified options is dangerous for your exchange.

- How sustainable is the current use of the assets we purchased?

I am optimistic about the long term future of downtown markets but even the downtown pessimists agree that it is difficult to disrupt multifamily real estate.

- How sustainable is the physical condition of the assets we purchased?

Both assets we purchased were redeveloped into multifamily from their previous use (Hotel and Office) using historical tax credits and other incentives. This puts the construction process under more scrutiny than usual and we believe this provides the best of the old and the new.

🏛 Best of the Old
- Timeless Charm, if properly maintained the property can still look and feel great many years after new construction multifamily has lost its luster.
- Reinforced concrete and Steel structures that are no longer - financially feasible for midsize property
- High Quality building materials that are not financially feasible new multifamily property

🏘 Best of the New
- New layouts reusing the building floor plates as efficiently as possible
- Updated MEP (mechanical, electrical, plumbing) by licensed contractors following drawings created by an architect
- Modern finishes and comforts for residents

I am open and happy to discuss this topic and would love to hear any commentary or other perspectives.

Blog Post Title Three

It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Don’t worry about sounding professional. Sound like you. There are over 1.5 billion websites out there, but your story is what’s going to separate this one from the rest. If you read the words back and don’t hear your own voice in your head, that’s a good sign you still have more work to do.

Be clear, be confident and don’t overthink it. The beauty of your story is that it’s going to continue to evolve and your site can evolve with it. Your goal should be to make it feel right for right now. Later will take care of itself. It always does.

Blog Post Title Four

It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Don’t worry about sounding professional. Sound like you. There are over 1.5 billion websites out there, but your story is what’s going to separate this one from the rest. If you read the words back and don’t hear your own voice in your head, that’s a good sign you still have more work to do.

Be clear, be confident and don’t overthink it. The beauty of your story is that it’s going to continue to evolve and your site can evolve with it. Your goal should be to make it feel right for right now. Later will take care of itself. It always does.