In California we have three rentals, our primary dwelling, and one vacant lot. We are considering diversifying into property elsewhere via Delaware Statutory Trust. Here are the parameters we're using in the decision.
- We are modeling that property values and rental income in California could continue as is, or could drop based on legislation and supply/demand. Our risk model has us 'surviving' with some loss with as much as a 40% reduction in value/rental income with a recovery of property value in two years (sort of like 2009-2011), and recovery of half that reduction in rental income. This isn't a prediction. It's what we are modeling for in a plausible worst case. It could be worse than that, it could be fine.
- It seems plausible that future legislation, say over 10 years, will impose restrictions that impact value/income (e.g., forcing Section 8, elimination of Prop 13) on owners of N properties, with N being four or five as was proposed in the most recent propositions. Note that is properties, and not rental properties.
- Of our three rentals, we are seeing return on cash of 22%, 13%, and 6% and we DO rely on that income.
- Our prediction for other states, such as New Mexico, Idaho, is that it is much less likely they will see the same reductions in value/rental income in the same period as California will. We observe most wise investors we are acquainted with, who had much higher return on cash than us, exiting some (or all) their properties in California.
- We predict a likely return on cash of 6-8% in a Delaware Statutory Trust, and understand the potential additional tax burden depending on where the properties are.
With that model, we are still deciding to keep our holdings in California as they are. The income of a DST seems not as good as the predicted income from the current investments in California - even if legislation/supply cuts our income over the next 10 years.
What might we need to include in our model that's missing?
OK, you don't like DSTs, I understand that. They're designed for people that want a 1031 with ZERO bother.
I would consult with an estate attorney and accountant.
Hi @Jeff Desenhaf . I don't know if this would work for you, but you could consider a monetized installment sale. Or donating the properties to a Charitable Remainder Trust. Good luck!