Seeking the best options and solutions for Property Investor
Updated: Feb 3
I have been working with investment property owners for twenty-plus years and am always seeking the best options and solutions for the investors I work with. It has to be that way for me.
Part of what fuels my passion for what I do is that I have been awed and amazed repeatedly by the tenacity, the innovation, the self-reliance and the courage investors show in doing what they do. I have learned from them and have been honored to collaborate with them.
The investment property “Owner-Warrior” (that’s the right term) continually demonstrates over time what good old-fashioned hard work and patience does in terms of accumulating real wealth. It works! Investing in assets that tend to appreciate and at the same time generate income? What a concept!
So why ever sell any property? Many investors can make a good case by the numbers for owning property forever and never selling. Those investors in the commercial real estate world are called “Hold and Die” owners. But the fact is that we all get older and most of us have retirement goals, travel plans and the like. Often times there may be health issues to consider as well. Living longer and more active lives than their parents, many baby-boomers find they need hip and knee replacements. Or sometimes life circumstances just change.
So, you’re older now and your real estate has appreciated significantly in value. That factored in with some of those possible life changes mentioned above may make you think that now is the time to pull the trigger, sell your property, and put that equity to work without having to be involved in the day-to-day obligations of property ownership. Resolved: It is time to fully immerse into retirement mode and sell those properties.
Good News: one of the great things about DSTs is that you can defer any tax consequences via a 1031 Tax Deferred Exchange, and DSTs generate income. That’s right, immediately. And there’s flexibility on where that income goes. You decide whether it will be for your retirement needs, or whether you want to re-direct some or all of the income to a charity, to your beneficiaries, or to whatever. DSTs afford you the flexibility to direct that income flow just about any way you want to. And you can make changes any time you want to. It is important to remember that although income is generated to the investors the entity itself that you are investing in is considered illiquid. The Trust (DST) has as the primary asset real estate. Typical life cycles I see in DSTs (formation to dissolution, also known as “going full cycle”) is around 5-7 years, but they are designed to be long term, like 10 years, selling based on market conditions. If you were to die sometime during the cycle, your beneficiaries would immediately get a step up in cost basis thus eliminating taxes that would have to have been paid were you to outright sell your property and not elected to exchange. The DST option also means it will likely be a few years before your trust gets these funds as a lump sum. But in the meantime, they would receive any income generated on a monthly basis through the holding period.
But back to the lifestyle benefits. What would life be like if you cleared the table of any responsibilities of active management? As one who became an oil painter and stage actor later in life, I can tell you there is life other than work! A 1031 tax deferred exchange into a DST can deliver you there in a New York minute. [For a thorough definition of a 1031 Tax Deferred Exchange, jump to the chapter “Accommodators Perspective” with William Exeter.]
For some, the constant drumbeat for repairs, complaints about neighbors, concerns about capital maintenance, even frivolous litigations can take their toll over the years. For others the idea of selling properties they have known for years is like saying goodbye to a close family member. Realistically perhaps, they are no longer as enthusiastic about owning and managing the property as they once were.
Is there an exit strategy that makes sense? A strategy that I can get my hands around? Can I fully utilize the equity I have accumulated and deploy it to maximize monthly income? Have we considered the tax ramifications of just simply cashing out and investing the funds in a number of other ways, stocks, bonds etc.
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