What Three Philly Rowhomes Can Actually Turn Into

By Eli Qarkaxhia | Principal, Q&U Team at Compass

The most common thing I hear from small landlords around here is some version of this: I've got a few rowhomes, they've done well, and I'm tired. And the second most common thing is that they assume their only options are keep them or sell them.

But a 1031 doesn't require you to buy the same thing you sold. The rule is like-kind real property held for investment, and that's a much wider door than most owners think. Almost any investment real estate exchanges for almost any other investment real estate. So the real question isn't whether to exchange. It's what you'd rather own.

Here's how I actually think about the options, from the perspective of someone who owns this kind of property and has run these numbers on his own portfolio.

Start with why you're tired

Before anything else, be honest about what's actually wrong. The answer determines everything downstream.

Too many doors, spread out. Three properties on three blocks means three roofs, three sets of systems, three tenant relationships, three sets of city inspections, and three separate trips every time something happens. The problem is fragmentation, not real estate.

The tenant profile. If turnover, collections, and wear are what's grinding you down, that's a function of price point and property type more than anything else. Buying more of the same thing in a different neighborhood does not fix it.

The asset class. Older housing stock in Philadelphia carries real capex. Roofs, party walls, knob and tube, sewer laterals, water in basements. If you're tired of writing five-figure checks for things nobody sees, that's structural, not operational.

Just the work. Sometimes the properties are fine and you're the problem, in the sense that you don't want the job anymore. That's the case where you should price professional management before you do anything irreversible, because eight to ten percent of collections is a lot cheaper than a transaction.

The first three are exchange problems. The fourth usually isn't.

Option one: consolidate into one small multifamily

Three rowhomes into a single eight to twelve unit building.

Same or more units, one roof, one boiler, one address, one inspection cycle. You've collapsed three sets of everything into one, and at that size you may be able to justify part-time on-site help, which changes your life more than the unit count suggests.

The trade is concentration. One building, one neighborhood, one market. If something happens to that block, it happens to all of it.

The other trade is that this is still residential. Same tenant dynamics, same turnover, same city rental license regime. You've fixed fragmentation, not the nature of the work.

Good move for someone who likes the asset class and hates the logistics.

Option two: trade into small commercial or net lease

This is the one most small landlords have never seriously considered, and it's the biggest change in daily experience available.

A single-tenant commercial building with a longer lease and a tenant responsible for taxes, insurance, and maintenance is a fundamentally different ownership experience. No turnovers. No calls about the heat. One lease, one relationship, longer horizon.

The trades are real. Cap rates on quality net lease are generally lower than what you're used to on rowhomes, so your income may drop even as your headaches do. Vacancy is binary — you're either a hundred percent leased or a hundred percent empty, with no middle. Releasing a commercial space takes far longer than filling a rowhome. And tenant credit becomes the whole analysis in a way it never was residentially.

You're also buying into a market you may not know. The skills that made you good at buying Philadelphia rowhomes do not automatically transfer, and this is where people overpay.

Good move for someone who wants out of the operating business but still wants to control the asset.

Option three: trade into a market with better fundamentals

You don't have to stay in Philadelphia.

Same capital, different market. Newer construction with less deferred capex. A landlord-friendlier legal environment. A place where you actually spend time, which matters more than people admit, because owning something four hours away and owning something four hours away that you visit twice a year are different experiences.

The trade is that you're giving up local knowledge, which is the thing that made you successful here. You know which blocks are good. You know which contractor actually shows up. That knowledge doesn't travel, and rebuilding it somewhere else takes years.

If you go this route, go where you have a real reason to be. Where family is, where you vacation, where you're eventually moving. Not where a podcast told you cap rates are better.

Option four: fewer, better assets in the same market

The quiet option that doesn't get discussed enough.

Trade three older rowhomes for one or two newer properties, or properties in a stronger location, at the same total value. Fewer doors, less capex, better tenant profile, more appreciation potential.

You'll almost certainly take a lower cap rate. That's the point. You're buying out of maintenance intensity and buying into stability, and the yield difference is what that costs.

This is often the right answer for someone who wants to stay in the business and stay local but is done with hundred-year-old housing stock.

Option five: go passive entirely

If what you want is to stop owning operating real estate altogether while keeping the deferral, there are structures that let you exchange into fractional interests in institutional property. A DST is the common one.

You get income and depreciation and no phone calls. You give up control, you give up liquidity for five to seven years, and you're along for whatever ride the sponsor takes.

Important: these are securities. You cannot buy one through a real estate agent, you need a licensed representative, and I don't sell them and don't get paid if you do one. I mention it because most small landlords have never heard of it and every article about them online is written by someone who does get paid.

I wrote about this and the rest of the exit options in more detail separately.

What actually determines the answer

Three questions, and they're not the ones people start with.

How much income can you afford to give up? Almost every move toward less work also moves toward lower yield. If you need every dollar the rowhomes produce, your options narrow considerably. If you have room, you can buy peace with basis points.

What's your holding horizon? Buying something you intend to own for twenty years justifies a different price than something you'll trade again in five.

Are you actually done, or just tired this month? Real question. Turnovers cluster, bad months cluster, and people make permanent decisions during temporary frustration. If the properties are sound, wait ninety days and see if you still feel the same way.

The practical part

Whatever direction you pick, the timing rule doesn't change: start looking before you list.

The 45-day identification window is not enough time to learn a new asset class or a new market from scratch. If you're going from rowhomes to net lease, or from Philadelphia to somewhere else, that education needs to happen while you still own the rowhomes and have no clock running.

The people who do this well spend six months looking before they ever put a sign up. The people who get hurt close first and start learning on day one, and end up owning whatever they could figure out in six weeks.

I'm an investor and a real estate professional not a CPA, an attorney, or a licensed securities professional. This is how I think about these trades, not advice for your situation. Talk to your own tax people before you sell anything.

If you own a few rentals around Pennsylvania, New Jersey, or Delaware and you're starting to think about what's next, I'm happy to look at it with you. What the properties would actually sell for, what that capital could realistically buy, and whether the trade makes sense at all.

No obligation, and I'll tell you if the answer is to keep them.

Book a Time or Call/text me at 215.287.4299.