DST, 1031, exit strategy, retirement advice
hi all!
i was hoping to bounce some ideas/get advice on an exit strategy / retirement planning / DST. i apologize if i jump around since there's so much running in my head.
anyway, so a little about me: i'm going to be 50 yo at the end of this year, single, and no kids. therefore, i'm leaning toward starting a sabbatical / retirement January 1, 2024. i like my main job in the health field but i'd also like to live a little and travel (i want to travel the world before i'm physically not able to anymore) without worrying about my patients or answering tenant calls.
i currently own 5 multifamily properties i purchased from 2009 to 2013 and they are all free and clear. i currently manage them myself as well as doing about 90% of the maintenance on them. i will hire out stuff like garage door springs, water line replacement, new roofs to name a few things.
why i want to sell:
a) i'm at a point where i don't really enjoy getting calls to come fix things anymore. at first it was really neat to learn how to remodel and fix things watching Youtube but i want less responsibilities now.
b) my return on investment was a lot better 10 years ago when i first bought the properties (properties were not worth as much then) but i talked with my accountant recently and i'm only getting about 3.5 to 4.0% ROI (mainly because property values have risen so much in the last decade). i could raise rents (i believe my rents are below market) but i also don't like the idea of having to repair a unit if someone decides to move out. all of my units have long term tenants
c) the good news is that the property values here in South King County have gone up by a fair margin over the last ten years. unfortunately, so have the property taxes which are taking a huge chunk out of my net income
d) i've always considered myself to be a fair landlord, often times too understanding, but the new rental laws seem to be favoring the tenants more and more. thankfully i only have one tenant taking advantage of the rent and eviction moratorium
e) i'm one roof / siding replacement or one bad tenant from decreasing my ROI significantly
f) bad tenants suck, they basically suck the joy out of you. thankfully i only have 1 out of 11 that suck.
exit strategies:
a) sell the properties and pay the capital gains taxes. unfortunately with my current tax bracket, it's my understanding that i will be looking at about 30% (correct me if i'm wrong) in capital gains taxes and depreciation recapture
b) deferred sales trust, i like the idea of being able to invest in other investment vehicles but i'm not a very trusting person. who's this 3rd party trustee that's going to be managing my money? i guess i have more faith in a large company like Passco or Cantor Fitzgerald
c) NNN, since my equity is split into 5 properties, i doubt i'll be able to sell them all at the same time and roll it into a NNN property. plus i don't like the idea of all my eggs in one basket
d) i could hire a property manager but they really eat up the ROI and i still have to pay for the materials and subcontractors they hire to fix things anyway.
current plan / train of thought:
so my current plan is to sell my properties during 2022, use a 1031 exchange and invest in DST (Delaware Statutory Trust) that specialize in multifamily properties preferably in states without state income taxes. i need to talk to my realtor but i figure i might be able to get $2.5 to 2.75 million after fees and taxes to invest with. i'd be perfectly happy with 4.5 to 5% return on that amount (4% would be about equal to what i'm getting now but without the headaches of managing the properties)
i'd be content with that rate of return. (i'm probably more in wealth preservation mode vs wealth accumulation). i also don't mind the idea of DST being an illiquid investment since i still have a healthy brokerage account, a 401K when i turn 59.5, no debts and a 250K line of credit that i can tap into if i run into any emergencies. i don't have a lavish lifestyle (traveling is my biggest expense and i'm still a bargain shopper at that) and i really don't have to leave an inheritance to anyone since i'm single and no kids. lastly, i can also return to my healthcare job if need be or if i get too bored. (i plan on keeping my healthcare license)
i would then use 2023 to see how the DSTs perform. if they do well or as predicted, i will start my sabbatical 2024, if they don't do well, i would work an extra year or two. i would also consider exiting a DST when they mature if they're not to my liking since my tax bracket would be lower in 7-8 years when DSTs normally mature. but unless interest rates change dramatically i can't think of anything that's passive and get's me 5%.
i understand that there are risks in DST just like any other real estate investment. technically i could take a 30% hit (since that would have been my capital gains / depreciation recapture anyways)
i'm actually a little sad with the idea of selling my properties. they were my weekend and free time projects for the last ten years or so.
if you've made it this far, thanks for reading!
i guess my questions are:
a) am i thinking clearly on my assumptions? is this a good game plan? should i take the sabbatical / retirement plunge?
b) are there better investment options out there?
c) if you were in my situation would you do anything differently?
d) for people with DST experience, any other sponsors you've had good experiences with? i've heard good things about Passco and Cantor.
e) i'm leaning toward using Archer Investors as the qualified intermediary but any other references would be appreciated
f) any advice is welcome. i thought this would be a good place to ask since we're all real estate investors and have that mindset of using real estate to build wealth and fund our retirements.
thanks!