7 Questions to ask when planning a property investment exit strategy
Updated: Apr 22
“Owning an apartment complex straddles the line between an investment and a career.” So wrote Steve Lander on Chron.com. What is the value of your time? Can you put a value on time?
For many income property investors approaching or at retirement, the career part of that equation may no longer be as appealing. Here’s where I need you to listen very carefully. If you knew what I know about Delaware Statutory Trusts (DSTs), you likely would be immediately putting them on the table as one of the most viable options to consider utilizing as an exit strategy. The benefits to you could be many, not the least of which is no more tenants to deal with which translates to an improved quality of life for you. A few obvious questions should be asked before you move ahead with any exit strategy:
1) What is important to you?
2) Is it income replacement / preservation?
3) Do you want to donate money to your favorite charity?
4) Do you want to provide income and assets to your beneficiaries?
5) Would you like a method that will make it a little easier to strive toward those goals, resulting in minimal inconvenience and/or uncertainty?
6) Exactly what is the desired outcome you want?
7) And given all of this, what is the optimal strategy for you and how do you find out what that is?
The ultimate exit strategy is that we all pass on. Most people will leave their estate, their things of economic value, in a Trust created to divest those assets to heirs and others that are named as the beneficiaries of the trust. A designated Trustee will administer and oversee the assets on behalf of the beneficiaries as directed in the trust documentation. But what will the Trustee’s responsibilities be? Will the responsibilities be straight forward and easy to comply with or will they be complicated and difficult to perform? Will you be creating involuntary owners by leaving your beneficiaries properties that they really don’t want, or don’t really have the skill set or desire to manage? (Does that sound familiar?) More often than not, when you leave investment properties to someone who does not want to own them all they will want to do is sell the property as quickly as possible. It can wind up as a de facto “fire sale” with asking prices often well below fair market value. In this instance the true value that you wish to pass along is discounted, something most people do not want to see happening. And what if your beneficiaries don’t get along and they wind up with ownership interests in the same property? That scenario can easily result in acrimonious communications that could then lead to lengthy and expensive litigation, all just to settle your estate. This undesirable scenario can easily be avoided.
There are a host of financial advisers, real estate agents, insurance people, and attorneys that may approach you with what they think are your most viable options. The more ethical ones will be aware that there are a number of options to consider and they will do their best to guide you to the ones most suited to meet your needs. The not so ethical ones will use honed sales skills to steer you towards options that benefit them first and you second. In choosing the right advisor it is important to carefully check them out, do your homework and make sure you find one that works for you and has utmost integrity.
*** DST investments are illiquid, highly speculative and like all real estate, may involve substantial risks. DST owners do not maintain control over management decisions and are subject to additional IRS regulations. Potential tax benefits must be weighed against the costs and fees associated with a DST investment and its management.
By Don Meredith, President of Tactical Income Inc.
Author of The DST Revolution –1031 Exchange into retirement mode. 2nd Edition
Contact Don Meredith of Tactical Income, to learn more about Delaware Statutory Trusts (DSTs) and 1031 Exchanges at: firstname.lastname@example.org or (619) 726-6100.
Securities through LightPath Capital, Inc., Member FINRA/SiPC, 1560 E. Southlake Blvd., Suite 100 Southlake, TX 76092 925-899-1709 Direct 214-734-2957 Office