How to replace cash flow

Question

Considering selling a half dozen single family homes that cash flow well. Maybe $330-450k capital gains if I don't 1031. None of the passive 1031 things look terribly reliable to me (DSTs). What should I be thinking about doing with a half dozen chunks of money if I would like to replace the cash flow with different cash flow that won't urgently call me at 9pm Friday about something that's been broken all week? Current return on equity about 4.4%.

Bill B. · Answer

1) Hire a PM. I have NEVER received a call, much less outside of normal business hours. I get a text for non-emergency repairs over $250.

2) Your return on equity is horrible. If you want to get out of real estate you could get a better return with a CD at a bank. 100% guaranteed, 100% safe

3) You want higher returns and higher risk? Invest in funds that lend hard money.

Your problem is much easier to solve than a real estate investor making 10-15%. Pick a solution and move forward. Prime selling season starts in a month.

Ps. You could offer seller financing (preferably with 20%+ downpayment). This would increase your returns and lower your taxes by spreading the gain over several years.

Daniel Osman · Answer

It sounds like you’ve done well with your properties, and I totally get why you’re looking for a way to keep the cash flow without the late-night maintenance calls.

Even though you’re skeptical about DSTs, they can be a solid option if you do the right due diligence and work with a trustworthy partner. Some have high fees and little flexibility, but others are structured more conservatively with steady cash flow and long-term tenants. The key is researching the sponsor and understanding the underlying properties. If you find one with strong tenants in a recession-resistant industry, it could be a truly passive way to keep your money working for you. Another advantage is that you can diversify by spreading your investment across multiple DSTs. If you’re looking for more insight into this space, @Jon Taylor always shares good perspectives on the DST market.

Another option is investing in triple net (NNN) lease properties, where tenants handle taxes, insurance, and maintenance. That means you own the property, collect rent, and don’t have to worry about repairs or operational headaches. The key here is finding a tenant with strong financials and a long lease term to ensure stable income over time.

If you still like owning real estate but don’t want to deal with tenants directly, you could consider larger assets like multifamily or industrial properties and hire a professional management company. A good manager takes care of everything, so you still get rental income without having to be hands-on. The returns may not be as high as self-managed rentals, but it’s a great way to keep earning without the stress.

@Max Gallagher also mentioned the 721 UPREIT, which I’ve heard good things about. One thing to keep in mind, though, is that once you exchange your property for UPREIT operating partnership units, you can’t 1031 exchange out of them. The IRS considers these units as partnership interests, which don’t qualify for a 1031 exchange. So if your long-term goal is to keep deferring taxes, that’s something to factor into your decision.

Todd Anderson · Answer

@Amber G.,

I was in this same position a few years back.  I found that if I looked at exchanging older properties to new construction investment properties, it was not only a fairly easy process but also took away many of the problems that I had with maintenance on my portfolio.

The investors that I work with now find this to be the case, as well as they ability to have cash flow day one.  With this cash flow it allows them to have a PM team take care of the properties and have no phone calls.  When they do this in the right market they can also find a healthy appreciation on the investment.

Let me know if i can help talk you through the process.

best of luck

Max Gallagher · Answer

Hey Amber - You're asking the right questions—selling multiple properties creates both tax planning opportunities and reinvestment challenges, and the best approach depends on your long-term goals and overall financial picture.

Chris Seveney · Answer

Invest in a syndication - debt funds may get you 8-10% which is a lot better than that. Oil and gas funds give you depreciation. MHP funds may also get some good cash flow as well.

MF in the past has been great but that has been challenging in the past year+

Dave Foster · Answer

@Amber G. You could do what we call a consolidation exchange.

A consolidation exchange is where you sell multiple investment properties to acquire a larger investment property or several newer properties in a 1031 exchange.

This strategy would remove the hassle of managing multiple properties and allow you to defer all of the tax and appreciation.  And if you purchased multiple smaller but newer properties, you'd eliminate the Friday night phone calls and the unexpected expenses that negatively impact cash flow.

When doing a consolidation exchange, you should be mindful of the time frame requirement of the 1031 exchange and your reinvestment requirement.

You have 45 days to identify your potential replacement properties, and a total of 180 days to complete your exchange, so you want to focus on getting those properties sold before you have to take title to the new property and the end of your exhcange period.

One way to make this process go smoother is to find a single buyer and sell them as a portfolio, Sometimes though this requires a substantial discount over selling as individuals.  So, you could try to sell them all separately but close together.  And even if you didn't sell all of them to combine together.  You might sell 2 or 3 bunched close enough to combine.

Although it can seem a bit intimidating, This shouldn't present any tremendous problems in this market.

Andrew Syrios · Answer

If the problem is a matter of not wanting "urgent calls at 9pm Friday" it might be just worth hiring a property manager.

You could 1031 into a commercial property which would be less management intensive (although generally riskier as they're harder to lease). We once bought a portfolio with a group that was doing a 1031. You can't do a straight syndication but you can do a TIC (tenant in common) on such a partnership. Might be worth looking into if you know anyone buying larger properties and looking for investors. Either way, the cash flow will almost certainly be less.

Matthew Becker · Answer

I would invest in a small fund, which you can own, and earn 8% on your $400K plus appreciation.

Where are your properties located?  Why not bring on a younger partner that will grind it out for a share?  Maybe a relative or someone who works at PM who wants to get into investing.

I own many rentals, and although I am a young 53, I am training a kid to take over for an equity share by the time I am 60.

You can probably find someone on this platform.  Heck, depending on where you are, it could be me.

If you sell the gains will suck.  You might not walk with much money if you depreciated for a long time.   I would take advantage of an opportunity Zone investment fund.  I operate one in a college town, but many out there that can help you invest.  I am not trying to sell you on my fund; it's already filled up, and I am not launching a new one for 6 months.   My fund is only about 1/4 of what I do.  I mostly do small partnerships with people and am the operator, but I have a team and have not taken a tenant phone call for 20 years.

The best thing is to keep them and deal with them. It will be worth it in the future unless you die in a year, in which case it will not be worth it.

Amber G. · Answer

yeah, I've used the cash flow to replace my income while I did the sahm thing and it worked well for that but at this point the ROE is dim. That ROE is actually including what I'm paying on the loan principle so it's not even real cash flow, just money I'll get back when I sell. Cash is more like 3. I started out more like 18% ROE but equity and time have done their thing. Long term tho, if interest rates ever come back down, might I miss a relatively easy 3-4%? I've had my head outside the investing space for a decade and it's a very different landscape now. I don't want to do something rash while I'm irritated at the world and regret the lost cash flow if things get back to what I had thought was normal for decades.

How to replace cash flow

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