My dad needs help with his decision to sell his apartments.

Member since 2018 · 20 posts · 4 votes

My dad has about 35 doors in one location which is his main source of income. The units are probably worth $2mil and are bringing in probably $20k a month.

The units are about 25 years old and have not been serviced good the last 5 years. It’s too the point where there’s probably $200k worth of stuff to be done to get them back to 100%.

My dad is older and doesn’t want to go into anymore debt so he is having thoughts of just selling and getting out of it.

The negativeI see to that is:

1. What is he gonna take the money he gets from selling it and do with it to bring in the same amount of money to live on?

Seems to me he needs to keep them spend the money it takes to fix them up to get full rent and just take that hit.

Just wanted to get some opinions. Thanks

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Anthony C Valera

Investor · Worcester County, MA · Member since 2020 · 7 posts · 11 votes

Probably unpopular opinion but he could put the portfolio in a trust and seller finance the whole thing to an investor willing to put the work in to bring it up to market value. Depending on what all those numbers look like, a decent down payment to get him started (and pay off some of that debt!) , and then provide him with monthly income without the hassle of doing the work. This would prevent capital gains or the need to 1031 since he would only be taxes on the money he is actually receiving each year.

Granted this monthly number will likely be lower than his current rental income BUT the possibility is there to control the down payment and the interest rate, ideally netting him more through the life of the loan.

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Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
$2 mil in the right (safe) accounts could give your Dad plenty of monthly income to live comfortably for the rest of his life. Unless he loves doing the business (sounds like he doesn't) it might be better for him to hang it up and move on......
Why do you think he should keep them?
6 Reply
Charles Seaman
Apartment Syndicator · Charleston, SC · Member since 2017 · 519 posts · 631 votes
3y
@Jordan Akins Is the deferred maintenance preventing tenants from renting units at these properties? If not, then what's the downside to your father continuing to hold the properties and not addressing the deferred maintenance? A little more context will allow me (and others on the forum) to give you better feedback.
0 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
@Jordan Akins He can sell the entire portfolio and 1031 into an asset with less deferred maintenance. Or he can take out $200k and fix up his properties as they turn over. Either option is better than selling and paying the taxes/depreciation recapture.
5 Reply
Peter Nikic
Investor · New York & TN · Member since 2019 · 325 posts · 219 votes
3y
where are they located?
0 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
If he wants to get out, have him sell a few that have the least cash flow or are problematic. He can use some of that money to do the repairs on the other.

It is his money and if he doesn't want to be in real estate anymore, he can slowly sell his places and still have a good amount of money. He can also use some of the money to buy newer properties with less maintenance if that is his concern.
1 Reply
Jordan Akins
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Member since 2018 · 20 posts · 4 votes
3y

1 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
Can you 1031 to a new construction? We have a construction company which is why I ask. I also thought I heard the 1031 was going away 2023

Quote from @Jon A.:

@Jordan Akins He can sell the entire portfolio and 1031 into an asset with less deferred maintenance. Or he can take out $200k and fix up his properties as they turn over. Either option is better than selling and paying the taxes/depreciation recapture.

0 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
I think he should keep them because there’s nothing he can take that money out directly into something and get the monthly cash flow he is…that I know of.

Quote from @Bruce Woodruff:

$2 mil in the right (safe) accounts could give your Dad plenty of monthly income to live comfortably for the rest of his life. Unless he loves doing the business (sounds like he doesn't) it might be better for him to hang it up and move on......
Why do you think he should keep them?

0 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
Quote from @Peter Nikic:

where are they located?

Southeastern Ky
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Jordan Akins:

I think he should keep them because there’s nothing he can take that money out directly into something and get the monthly cash flow he is…that I know of.

So does he need that $20k a month? All of it? Maybe take $15k and not have to deal with the hassles and stress....

When you're older, it's not as important to keep every single dollar....lifestyle is important.
1 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
Quote from @Charles Seaman:

@Jordan Akins Is the deferred maintenance preventing tenants from renting units at these properties? If not, then what's the downside to your father continuing to hold the properties and not addressing the deferred maintenance? A little more context will allow me (and others on the forum) to give you better feedback.
No they are staying rented for the most part. It has went from very nice townhouses to a rundown low end apartments. Its getting worse and worse which costs more and more money down the road.

He is just a little older and doesn’t really want to go into anymore debt even though he knows keeping them would probably be a better financial decision.
0 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
Quote from @Bruce Woodruff:

Quote from @Jordan Akins:

I think he should keep them because there’s nothing he can take that money out directly into something and get the monthly cash flow he is…that I know of.

So does he need that $20k a month? All of it? Maybe take $15k and not have to deal with the hassles and stress....

When you're older, it's not as important to keep every single dollar....lifestyle is important.

Yes, taking $5000 a month away would hurt lifestyle a bit.
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Jordan Akins:

So an elderly man could not live comfortably on $15,000 a month? Seriously? He may want to adjust his 'lifestyle' then.
2 Reply
Jordan Akins
OP
Member since 2018 · 20 posts · 4 votes
3y
Quote from @Bruce Woodruff:

Quote from @Jordan Akins:

So an elderly man could not live comfortably on $15,000 a month? Seriously? He may want to adjust his 'lifestyle' then.
There’s still a lot of debt. Sorry for not telling the whole story.
0 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Jordan Akins:

Quote from @Bruce Woodruff:

Quote from @Jordan Akins:

So an elderly man could not live comfortably on $15,000 a month? Seriously? He may want to adjust his 'lifestyle' then.
There’s still a lot of debt. Sorry for not telling the whole story.

Ahhhh, ok then. Hard to figure this out. We'd need to see the P&Ls to really help with a decision...
1 Reply
Peter Nikic
Investor · New York & TN · Member since 2019 · 325 posts · 219 votes
3y
Quote from @Jordan Akins:

Quote from @Peter Nikic:

where are they located?

Southeastern Ky

Well it does sound like your dad needs help (from the comments you've made here). I wish it were in SE TN.
The cow can't continue to give milk if you don't feed it. Regardless, you're taking a step in the right direction. That is finding someone or a solution to this destructive path.
Now please don't take the next thing I'm going to say the wrong way, but someone needs to take over or he needs to sell. The reason I say this is because he had a good property that is getting worse each day, that means he is not doing the right thing. At minimum, a property should be maintained in same quality/condition as purchased.
Selling is the worse option, but if necessary then...
Can you or a close friend or relative take over? Or find someone who is ambitious (generally younger person with no money or property, but they have drive and ambition), offer them a percentage of ownership and profit sharing once property income goes above a certain amount. Pick wisely, that person could be your future partner, that person could bring your father and you future wealth.
Or figure out some way that makes sense to bring property back to the level is should be. Feel free to message me with any specific questions. Good luck.
1 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Jordan Akins:

I think he should keep them because there’s nothing he can take that money out directly into something and get the monthly cash flow he is…that I know of.

Quote from @Bruce Woodruff:

$2 mil in the right (safe) accounts could give your Dad plenty of monthly income to live comfortably for the rest of his life. Unless he loves doing the business (sounds like he doesn't) it might be better for him to hang it up and move on......
Why do you think he should keep them?

I'm not a 1031 expert. I think you're asking if you can 1031 into raw land, and I think a Google search would answer that question. That said, i don't see why worst case you couldn't 1031 into a tear down then build on the lot. Again, I'm not a 1031 expert...

... But if you own a construction company, what's the issue spending 200k on renovations? This is your line of work...
1 Reply
Anthony C Valera
Investor · Worcester County, MA · Member since 2020 · 7 posts · 11 votes
3y
Probably unpopular opinion but he could put the portfolio in a trust and seller finance the whole thing to an investor willing to put the work in to bring it up to market value. Depending on what all those numbers look like, a decent down payment to get him started (and pay off some of that debt!) , and then provide him with monthly income without the hassle of doing the work. This would prevent capital gains or the need to 1031 since he would only be taxes on the money he is actually receiving each year.
Granted this monthly number will likely be lower than his current rental income BUT the possibility is there to control the down payment and the interest rate, ideally netting him more through the life of the loan.
9 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
I sold my similar portfolio this year by owner with SF, interest only. CF is the same but I had a low ROE.
An almost perpetual annuity that spreads out the tax hit.
4 Reply
Jon A.
Investor · Brooklyn, NY · Member since 2022 · 158 posts · 118 votes
3y
Quote from @Anthony C Valera:

Probably unpopular opinion but he could put the portfolio in a trust and seller finance the whole thing to an investor willing to put the work in to bring it up to market value. Depending on what all those numbers look like, a decent down payment to get him started (and pay off some of that debt!) , and then provide him with monthly income without the hassle of doing the work. This would prevent capital gains or the need to 1031 since he would only be taxes on the money he is actually receiving each year.
Granted this monthly number will likely be lower than his current rental income BUT the possibility is there to control the down payment and the interest rate, ideally netting him more through the life of the loan.

What happens with depreciation recapture in this scenario?
0 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
@Jordan Akins why not keep them and hire a property manager?
2 Reply
Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
3y
@Anthony C Valera BINGO! Love this reply.
1 Reply
John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
3y
@Jordan Akins this sounds like more of a management issue than anything else. I think it makes sense to find a competent management company and let them handle the day-to-day management going forward. You and your Dad can get involved if there are major unit turns or CapEx decisions, but let the management company lease, handle maintenance, landscaping, etc. There will be a bit less cash flow since the management company will need to make more repairs, but this gets you the best of both worlds and allows you not to sell the golden goose.
1 Reply
Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Jordan Akins
If he had $2M he could invest it in many different types of funds that get 6-10% which would be anywhere from $10k- 18k/mo which should be plenty to live off of.
It’s not $25k but is $25k what he is betting or grossing. Also because he deferred the maintenance etc he is going to end up paying that when it sells.
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Chris Levarek
Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
3y
Seller financing, a 2nd lien or Line of credit could do the trick. Really you want to avoid a sizeable tax on selling in this scenario, then those can allow you improve the property and/or avoid large tax gains.
Obviously not the best time for a refi, but you could refi into a ARM or IO loan and then refi again at a later date. This would provide some cash to complete renovations and potentially not change the monthly payments much.
Partnering with someone experienced in these assets who can assist managing renovations would be ideal, so your dad doesn't have to do it. Of course this requires the right partner and an openness to the idea. :)
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