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Transforming Appreciated Rental Properties into Retirement Income

Old couple in Retirement

Being a landlord has its challenges and there comes a point when a lifestyle change may make sense.

Jim bought a Bay area apartment complex 30 years ago with an investment of $2 million and a loan of $6 million. He has since payed it off and is currently realizing net cashflow of $200,000 per year. His property is currently valued at $30 million. He is now in his golden years and his kids want him to retire and enjoy the good life. What are his options?

Jim is still actively overseeing management of the property. He is dealing with ongoing maintenance issues and tenants who fail to pay the rent. He still gets those annoying calls at night with some critical issue that needs an immediate response. He is thinking of retiring – but is not comfortable giving up a portion of his appreciated gains to Uncle Sam and does see any good places to put his money if he sells.

“With good planning and better awareness of reinvestment options, landlords can avoid taxes and, in many cases, substantially increase their income,” states Paul Getty, President and CEO of First Guardian Group (www.FGG1031.com).

After meeting with Paul and his team, Jim decided on a plan that allowed him to 1) sell his property and avoid the payment of any taxes 2) reinvest his proceeds into properties that would boost his net cash flow from $200K per year to over $1.5 million per year.

“Through properly utilizing the 1031 Exchange guidelines permitted by the IRS, Jim can defer 100% of his potential tax liabilities and reinvest his full net proceeds into properties that yield 5% to 7% net annual cash flow,” states Getty. “Furthermore, his replacement properties are managed by a third party that delivers hassle free income paid monthly which is mostly tax sheltered due to flow through of depreciation and expenses,” he added.

To answer the important question of “What do I do with my money?”  Jim decided on investing in a portfolio of properties that were each structured as a Delaware Statutory Trust (DST). DSTs are prepackaged properties that have in-place management and do not require any loan qualification. They also qualify for “like-kind” 1031 Exchange tax deferral strategies. One of the key problems solved by DSTs is the ability for investors to identify suitable replacement properties within the strict 45-day period allowed by the IRS. “At any given time, we have 15 to 25 DST options available which can be identified and closed in as little as 3-5 days,” stated Getty.

DSTs are available in all common real estate asset classes and generally provide potential first year net income ranging from 5% to 7% plus appreciation. Minimum investments can be as low as $25,000 allowing investors to diversify across multiple assets. Investors must be accredited, i.e., they must have a net worth of greater than $1 million excluding their personal residence or have annual income greater than $200,000.

For older landlords who are looking into retirement options, use of a 1031 Exchange coupled with reinvestments into DSTs could result in an attractive scenario that meets many objectives.

About :

FGG1031 is an affiliate of First Guardian Group and is headquartered in San Jose, California. Our team consists of highly experienced real estate and investment professionals who have provided services to thousands of clients across the US for more than 12 years.

At FGG1031 we specialize in providing a custom 1031 exchange experience by working with the investor one on one throughout the entire 1031 exchange process. We provide advice on selecting suitable 1031 Exchange options including properties structured as a Delaware Statutory Trust (DST) as well as access to wholly owned real estate.

Our seasoned team holds real estate and securities licenses and can provide our clients with suitable 1031 Exchange options across the US. We are dedicated to providing our clients with optimum solutions to meet their complete range of real estate needs and will provide assistance throughout the entire selection and investment process to ensure that our client’s objectives are achieved.