Ah the Exit Plan. That gets discussed here every now and again and everyone's is different.

One thing we never really knew before getting IN was that getting OUT could be so expensive. So our plan is death and leave it for the kids to deal with. All 3 are interested in having rentals so we are parceling up the properties and leaving them each some property - separately - to do with as they will.

For us, though, the income from the rentals far exceeds what we could make in the stock market, and where else can you put your money but real estate or stocks? So we'll keep on with this. When we can't anymore, kids will have to step up and help.

It sounds to me that so far you have handled the downsizing redeployment very well. as for minimizing cap gains when you aren't exchanging, I would think it best to do so on a low income year. Perhaps by expensing (instead of capitalizing)as many items as possible on your new acquisitions (AC, Appliances, water heaters), put the new roof on in the year of the property sale.

The government cancelled my exit plan which was to live in each one and then sell it as owner occupied. So now the plan is to die with them and my heir will pay the taxes. Much more in taxes than the original plan if stepped up basis is eliminated.

Or maybe the government will seize them all and donate them to worthy welfare slugs. A few years ago, I wouldn't have thought that was possible, but things change.

Our exit plan continually changes. As you see from your problem it can't remain the same.

The big issue is no mortgages to pay. Depreciation, each year is minimal, so how do you cover the profit? Simplistic as it is "have no profit".

We've tried many routes and considered many options since 86.The laws and tax rules changed many times in 35 yrs and it looks like more rule changes coming. We went from Wrap Around loans to owner financing to holding seconds to limited partnerships.

Our best plan: all the property's are in a family limited partnership (FLP). The plan is when both partners die for the partnership property's to go into the trust and be worked by the corporation. The last wills cover the operation of the trust and our wishes for disbursements.

As I've stated many times here. We have no profit from the rentals. All income is put back into the property's or into employees pay.

Always the basic question: WHY do I need profit? My property's are paid off--- if I need cash I could just post --HERE--- list it as "I have a 170K property that in need to sell". Will take 80K cash. Property is occupied and renting for 1350.00 a month-- currently has tenant.

CASH FLOW PROBLEM RESOLVED. I could do that for 60 months if need be.

Bet MA I loved that story. Never to old to start. You did have one flaw in that post. Your brought in friends--- how'd that work out?

Yes, do not go into business with friends.

Last spring we had some good friends (so we thought) that asked us to go to the U.P. on vacation, camping in our RV's.

Which we did. The morning after our arrival, we were asked to go for a ride and we were taken to a cabin on Trout Lake.

As we stopped to view it we noticed it was for sale. Our friends asked us to get out and walk around and then we were asked to "go in with them, as half purchasers." We declined and realized the whole trip had been a set up. Then that evening my friend decided to tell me how much money she and her husband earned each year. I did not ask her. But then she asked me what I brought in. I told her I brought in enough to get by, as it is none of her business. Well, she became huffy and now no longer stops by to see us. Neither her or her hubby.

Friends like that we do not need and we are thankful we saw threw the B U L Sh T.

Exit Plans! Here are a few methods I've used when disposing of something and trying to limit taxes, fee's and commissions -- totaling almost 40% of the profit.

Single Family Home: Do an installment sale with the buyer putting less than 29% down. Have a pre-payment penalty. Advertise for sale by owner so there will be no broker's commission. You can get over market since you are going to carry back the first mortgage. Charge a medium to higher mortgage rate -- like 5%.

Units: I would do a 1031 exchange into several TIC (tenancy in common properties). Never put all of you eggs in one basket. I sold an 8 unit building and came out with a hefty chunk of change. I then put $100,000 each into 5 different investments. The balance I took out and paid taxes, boot. Then one by one I could sell of a TIC when necessary.

Doesn’t the stepped up basis actually cost more once you exceed the estate tax exemption threshold?

Sell now and you pay 15% capital gains tax and the recapture depreciation rate which is capped at 25%. The estate tax is 40% on anything exceeding the exemption amount.

Well you can become a less hands on landlord a variety of way.

1) I am pickling up another NNN property in October. In NNN properties, the tenant does the maintenance, pays the insurance and the taxes. These are typically done with national level commercial businesses being your tenants. I know restaurants were torn up around here because of the knee jerk reactions with C-19 so they are cheap now. The beauty about these properties, they can be any where as they are hands off. I have a local food producer set up as a NNN. I picked up a Dollar General in 2020 and this year looks like a Pizza Hut. Doing the site visit on Friday and its about 700 miles away. The DG is about 650 miles away.

2) I bought fractional ownership in some gas wells in a couple of different states with Marcellus Shale and that is mailbox money for roughly the next 15-20 years. They are currently yielding about 17% annually. I do have to file state income tax in these two states.

3) You can purchase a TIC investment in a partnership. A starting out Doc for example, can't really buy a place with $350,000 in student debt so you are buying the office for them. You can also pick up a shopping plaza in this manner.

4) A DST can allow you 1031 into a grade A place while being absolutely hands off. You do end up paying a premium for them, but in the right place with right plan - you can name the percentage play into a deal....from $25,000 to 25 million. DST are broken down in various categories. Some of these investments are questionable - I was offered fractional ownership in a luxury hotel across the street from a large hospital in Detroit. Is Detroit a vacation destination?

5) You can also do the owner financing in a variety ways. MYOB mentioned wraps, and when rates go up - the stage for that strategy is set. By placing the properties into a trust, you are setting yourself up to do that easier.

6) You can automate your business by doing niches where you don't have to be hands on. Storage units for example have software systems that allow people to rent your units at 3 AM and pay for 6 months in advance - while you are sleeping. I was eyeing up a car wash last month but that actually requires work and I just didn't see the numbers that excite me.

7) A reverse 1031 is an option if you are finding it hard to find replacement properties that suit your needs

8) Finally you can train your replacement and do installment sales plan.

I have nearly exited ... sort of.

Needed to get out of the hood .... just getting too dangerous to be renting in a sancuary city. Sooo...

Carried paper on a couple ... but they refi'd out of the higher rate in 6-7 years.

1031 exchanged to water front land in a resort area. Sold another to develop said land. Now run it as a vacation rental when we don't use it.

Paid cash for a small inn in said resort area.

Waiting out my last S8 tennie in the hood ... 22 years n'counting.

I'd like to sell everything and pay the taxes. Then put the money with a wealth management group and live off 4-6 percent a year.

No tenant BS

No drama

I can live where I want

Easy to pass on

MikeA (TX)

That was my plan too until I recently found out the IRS does not allow you to sell to a relative on an installment plan! I’m furious about it.

Well, you actually can do the financing but you can’t spread out the taxes when the financing is made to a direct relative. You must pay the taxes in the year of the sale.

From what I understand that is not permitted either because the LLC is owned by the related party. I’ve looked for a way around it but there doesn’t seem to be a viable alternative except to sell it and pay the taxes in the year of the sale.

...sounds like we a thread:

BANDIT SIGNS THAT LANDED INHERITED PROPERTY