Real Estate Investment Case Study

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1031 Exchange + Arranged Financing

Verona Apartments (16 Units) to Roseland Apartments (30 Units)
2019 - Current
Engagement Type
1031 Exchange + Place/Invest Cash
Realty Yield Role
Listing Agent, 1031 Exchange Coordination, Buyer’s Agent, Mortgage Broker
Investor Cash/Capital
$991,423 (1031 Funds) + $646,680 (Cash)
John B

Investor Profile

As of 2019: Client's current investment property portfolio includes small/mid-size apartment complexes and a mixed-use property. Client primarily utilizes professional property management to manage the day-to-day operations of his properties. The objectives moving forward are continued wealth (capital) growth, increased cash flow and the consolidation of invested capital into fewer/larger high quality assets.

Engagement Objective

Execute a 1031 Exchange and combine these funds with cash-on-hand to acquire a larger asset.


The process had two parts, find a Buyer for the property our client wanted to sell and identify a 1031 replacement property. Fortunately, Realty Yield had another client that was selling one of his properties and the property to be sold was a perfect fit.  It was a win-situation.  An in-house Purchase & Sale Agreement was executed with a flexible closing date until a replacement property was identified for the Seller.  

Many Properties were both financially and physically screened from January through March 2019. The list of prospective acquisitions included multi-family properties of $4-$7 million located both throughout Oregon as well as the secondary markets of Spokane and Bellingham Washington. The Medical/Office and Self-storage property types were also being considered.

The Chosen Opportunity (the property ultimately acquired)

A quality built, new construction, 30-unit multi-family project met the criteria and standards of what our Client was looking for.  The subject property was in an up and coming area of close-in SE Portland, could be managed cost effectively by a third-party property management company and was a good fit for the capital available.  This was going to be a lower leverage purchase; hence also met the cash flow target our client was seeking.

The Challenges

The primary challenge was simply negotiating a mutually acceptable sale price.  The secondary challenge was going to be securing a satisfactory loan amount since the property was not yet fully leased-up (vacancy still about 23%). NOTE: lenders only underwrite on the current "in-place" net operating income so the loan-to-value (LTV) was going to be limited to some degree.

The Execution

Ultimately, this lending challenge worked in favor of our Client during price negotiations since the down payment (capital) requirement took many other interested parties out of consideration. A mutually agreed upon price was negotiated over a period of a couple of weeks and a Purchase & Sale Agreement was drafted with a flexible closing date until the subject property reached a vacancy level of 10% or less so the loan could fund.  

The Result (1031 Exchange Completed)

Relinquished property sold for $3,625,000. Replacement property final negotiated purchase price was $5,250,000. The 1031 Exchange was easily completed within the timeline required by the IRS.  

Realty Yield Comments & UPDATES:

6/2019: It should be noted that many mutually beneficial transactions occur privately (in-house) between clients of a single real estate brokerage firm. It is very common for a property that no longer fits for one client is ideal for another.  These types of transactions usually occur between experienced investors that have a good understanding of property values and hence are willing to execute a deal without putting on the open market.

Roseland Apartments, Acquired (through 1031 Exchange), June 2019 - $5,250,000. Realty Yield arranged acquisition financing.
Roseland Apartments, Acquired (through 1031 Exchange), June 2019 - $5,250,000. Realty Yield arranged acquisition financing.
Verona Apartments, Sold (1031 Exchange), May 2019 - $3,625,000
Verona Apartments, Sold (1031 Exchange), May 2019 - $3,625,000