1031 Exchange – Kailua to Sacramento

1031 Exchange – Kailua to Sacramento

 This is a case study explaining the how and why Stott Real Estate, Inc. helped Stott Property Management, LLC clients successfully complete a 1031 Exchange.  The clients hired Stott Property Management, LLC to manage their fully furnished Kailua house in 2012 and their plan was to stay in the house for part of the year and rent it out the rest of the time.  Life took over and it turned out to be impractical for the clients and their family to visit Oahu on a regular basis and ended up renting it full-time.  They started looking at other investment opportunities and realized that they could sell the Kailua house and buy property close by in Sacramento with the proceeds.

The Kailua house rented for $3,200 when they decided to sell and sold for $870,000.  They bought three two-bedroom condos located near an Amazon fulfillment center for about $810,000.  The three condos combined rents totaled more than $5,500 after completing some make-ready repairs in two of the condos.  The Kailua house was built in 1955 and all three condos were built after 2000.  Sacramento held additional advantages over Kailua in the form of lower expenses including lower labor rates, lower insurance rates, and lower utilities.  Because the cost of land in Sacramento is much cheaper than Kailua, our clients were able to generate more tax-free income in the form of higher depreciation rates.  In summary, our clients sold a property that rented for $3,200 per month and bought investment property that rents for $5,500 per month and nets them $3,000 per month.  They significantly improved their positive cash flow and tax-free cash flow by completing a 1031 Exchange.