Hello friends, it's been a while. I’m now 65, four years retired from my W2 position in municipal government, and I own 15 fully paid-off single-family homes. I’ve never really considered an exit strategy, but lately I’ve been thinking about options such as owner financing or selling some properties outright.

Legacy ? If you have heirs and you like them, you could leave everything to them at the stepped up tax basis.

This I can tell ya,

I exited, paid my share in taxes,

recouped it back through other investments

and live comfortably.

Hopefully you have insurance in case you or your family ever need long term care. They will drain most every cent from you. They have a 5 year look back where every gift, and every dollar that goes out of any account you own, any property transfer, etc is found and they either take it back or disqualify you for a period on getting help. After you pass, they then take your primary house from your heirs as well.

Even if you move property into a medicare protected trust there is still the 5 year look back.

There are several ways to deal with this, but that's where experts come in.

Most investors going to sell DO NOT Consider all ramifications, including TAXES.

1) If I sell a paid off property that was held for a long time, then here are my cost and taxes.

Long Term Federal Taxes = 20%

California Taxes = 13.3%

Recapture/deprecation = Paid back at 25% of my previous total write-off

Sales Load/Broker & Transfer Tax = 8%

That's 41% Plus 20% of my depreciated amount

Example: Purchased a home for $100,000 and Sold it for $700,000 30 years later.

Sales load $80,000

Gross Profit $644,000

Recapture ($85,000 times 25%)=$21,250

Meaning I'm left with around $360,000 out of the $644,00 proceeds.

THAT's around $280,000 in taxes!!!!!!

_______________________________________________________________

THE SOLUTION:

Get several certified appraisals on your property.

Let us just say your property is worth $500,000. If you sell it, you agent and escrow fees would cost you $40,000.

Instead place an ad: Property For Sale, OWNER FINANCING! No Loan Fee's. No Points. No Appraisal. Easy to Qualify. Down Payment negotiable.

Since the buyer doesn't have to pay $15,000 to $35,000 in loan fee's. you can ask OVER MARKET Price. Instead of $500,000, ask $515,000.

So long as the down payment is under 29%, then this is whats called as an installment loan.

So you Pay the Taxes as you receive income/the monthly payments.

If you sold for $500,000 and paid the taxes, you'd have only $275,000 net. In the bank that generates only $1,000 a month.

But under an installment sale with a small down payment from the buyer, your monthly income is over $2,500 per month-- a lot more...

I use 1031 exchanges into more hands-off investments. NNN investments, NN investments, producing Oil and Gas Wells, some commercial properties, DSTs,

Certainly a lot of good advice here. I guess it comes down to why you are doing it.

1. - Do you need the money

2. - Do you want to pay taxes

If you need the money, then you will most likely have to pay taxes. You can sell a house every 1-2 years, for the next 15-30 years and die without any property.

If you don't need the money, then you can 1031 into a DST or triple net lease commercial properties. Ray and several others can give you their experiences. This kicks the tax can down the road or eliminates it if you die with the properties still in your portfolio. You will still own something but the income is passive and you are essentially hands off.

If you have children or heirs that you like, then you may want to keep the property until you die as they get it with a stepped up basis and you/they avoid taxes. They can sell at FMV and not pay the taxes that you would have if you sold it.

So it kind of depends on what your goal is. If you just don't want the work and want passive then 1031. If you want or need the cash to live on in your golden years then sell one every 2 years (or whatever works cash flow wise) pay the taxes and the depreciation recapture and move on merrily down the road.

There is no right answer. There is no best answer.

DM,

Congrats on a successful business!

Here's what *I* am actively doing to downsize and exit:

Spiffing up the pretty houses as they come vacant, selling for top top dollar.

Google your property's address, click on the Zillow listing and you'll be amazed at the market value of your props. This exercise helped me decide to sell because they are worth more than my wildest dreams! Homes I bought for $40k are selling for $240K!

You cannot eat equity. It just sits there. RE may go up in value but you don't gain anything until you sell. We DIY LLs grew up on holding but in business it's about moving the money - buy and sell.

NOW is a fantastic time to sell.

BUT...

I hate taxes! My props and probably yours are fully depreciated which means I will pay 37% of the sales price to the IRS, Indiana, and my county.

Talk to your accountant about your tax situation.

If I sell on contract I still have to manage (work) and several of my contract sales came back to me, losing money in the process, and needing much work to re-sell.

Or Sell and pay the 37% taxes, re-invest what's left in the stock market - but that money has to SIT, and then pay taxes on it (again!) when you sell it to eat.

SO...

I sell a prop or 2, do a 1031 exchange (Simple, only a $1250 fee) and reinvest the FULL AMOUNT (no taxes to pay) in a DST Delaware Statutory Trust. It's a fancy word for buying a share in a commercial property like a Home Depot or Tractor Supply. The DST has lawyers and such to manage it and auto deposit my share of the rents into my account = CASH FLOW TO SPEND! I just bought 1% of a giant warehouse in Florida rented to Amazon.

I made a lot of money on the rental while I held it, it sold for way more than I ever expected when I bought it, and based on the amount I invested in that rental I'm earning 18% ROI, as monthly CASH FLOW.

Even with the low advertised rates on DSTs I am CLEARING more cash flow than the rental provided. And it's all HANDS OFF!

This 1031 into DST is working well for me and I HIGHLY suggest it for LLs who have held props a long time.

Instead of my kids inheriting rental houses where *I* live and they don't live, they will inherit CASH FLOW at the stepped up basis. They can keep the cash flow or cash it in without paying any taxes.

Get real: your kids don't want your stuff.

I've seen too many LLs grow old, holding props so their kids can inherit at a stepped up basis. They finally pass from long illnesses. Meanwhile their rentals deteriorate and sales are delayed by probate. Props are "dumped" on the kids who now have to deal with props while they live their own lives. I've bought a lot of props cheap from "don't wanter" heirs.

Inheriting CASH FLOW is much easier than physical properties.

BRAD

We're looking into this. I'm a little confused about the difference between a DST and a 721 exchange. Both have the advantage of being passive (as opposed to a 1031 exchange). Yet the fees on BOTH seem exhorbitant.

A typical DST has a timeline of 3-7 years, and you have no say in when they elect to sell your interest in that investment. Not to worry though, they will surely have another investment for you to buy into - after all these folks are getting a sales commission for selling the DST to you.

As JS mentioned, 721's become REITs - you are no longer exchanging at that point. The investment fund buys and sells for you without you having to do another 1031 exchange in 3-7 years as in the DST. Both DSTs and 721 are excellent wealth preservation tools.

How easy is it to sell a DST if you want to get rid of it?

Impossible. They are completely illiquid. Your money is under full control of the DST sponsor.

Morning folks,

Good stuff, thk you all for the responses. Not familiar with the DST product but looking forward to exploring more options .

Always good insight BRad thank you all again.

Make it a good day