By using a 1031 exchange to trade a small multifamily property for a share in a large property, you can improve the quality of the management of your investment and obtain a more reliable and convenient source of income.


Buying Apartment Buildings: Going from a Small Investment in a Multifamily Property to a Larger One

Aug 30, 2018

Many multifamily real estate investors began their careers by buying small apartment buildings with only four to eight units. If you enjoy the hands-on approach to asset management and have limited financing, you may decide to do the same and then continue in that manner. However, there are several advantages to owning a large asset. By investing with a real estate investment management company, you can enjoy the advantages without purchasing a property many times the size of your current holdings. Having a clear idea of the types of assets you want in your portfolio will help you as build it.

The Benefits of Thinking Big When Buying Apartment Buildings

You might not think of yourself as being in the same league as investors in large luxury communities. But most large multifamily properties with over 300 units have many owners. By owning a share in a large property, along with your other investments, you could reap the following benefits:

  • Stability. Pooled resources mean a reduced risk of losses from property damage or vacancies.
  • Economies of scale. Management, maintenance, and other costs scale down the more units you have in your community.
  • Regular distributions. Regular payments, rather than endless little debits and credits, and complete financial accounts simplify your finances and provide a fully transparent record of investment activity.
  • Technology-based rent software. Modern, resident-friendly software can help ensure that accounts are always up to date and correct.
  • Vertically integrated management. Wearing multiple hats at your small properties may save money on salaries, but it may have a negative effect on the performance of your investments. Having a dedicated, professional property manager, asset manager, and general partner can help you attain optimal ROI.
  • Consistent market analysesTracking the market takes a lot of work but it is indispensable for evaluating the performance of your investment and strategizing to keep your portfolio balanced.
  • Restarting the depreciation clock. You can time the sale of your smaller property to minimize depreciation recapture, and then continue making 1031 exchanges as necessary.
  • Capital funding for renovations and improvements. Investment partners create greater possibilities for improvements.

When you invest with a real estate investment management company, you can enjoy these benefits while receiving a passive income. You can also rest assured that your investment is being managed by highly trained professionals while you spend your time on other things.

Moving from Small Property Ownership to a Larger Property

You can invest with a real estate investment management company through a 1031 exchange if you are replacing a property you own. By buying an interest in an apartment building that is greater than or equal to the value of your current property, you can defer all capital gains taxes and depreciation recapture.

It is a good idea to get assistance at the start of the exchange process—that is, when you are relinquishing your current property. A professional advisor can help you find the best deal for the sale of your property and advise you on the details of appraisals and due diligence, as well as on the selection of a qualified intermediary for the exchange. 

When you invest with an investment management company, the size of the investment can be tailored to your needs. But keep close track of the time and money. Even though you must be sure to never come into receipt of the proceeds of the sale of the relinquished property, you should know where the money is going. Monitor how much is going to fees and expenses and how much will be reinvested, so that you can be sure to meet the requirements of the 1031 exchange on time and without cash or mortgage boot.

By using a 1031 exchange to trade a small multifamily property for a share in a large property, you can improve the quality of the management of your investment and obtain a more reliable and convenient source of income. A 1031 exchange is an ideal vehicle for transitioning from a small property to a managed share in a larger property. There are strict rules for carrying out a 1031 exchange, but with adequate professional support, it is not difficult.

At CWS Capital Partners, we are a fully-integrated multifamily real estate investment management firm that offers everything from due diligence and risk management to transaction support and property management. We specialize in assisting our clients with 1031 exchangesacquisitionsrepositioning, and development. We own and manage luxury multifamily investment communities in major markets around the country, and we employ a team of experts who can help you hone your investment strategy. 

Please contact us to learn more about investing with CWS Capital Partners, or view our current offerings by completing our self-certification form for accredited or qualified investors.



The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.

All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.

Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.

Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.

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