Babyboomers leaveing Real Estate Investing

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Babyboomers leaveing Real Estate Investing

Jake Decker
Salt Lake City, UT · Member since 2017 · 6 posts · 2 votes

Hello BP members,

I'm loving the vast knowledge on the forms. I've been looking around and haven't see an answer for this.

I am working on several strategies for baby boomers who want to leave the real estate investing world. Some boomers want a more secure income without the hassle and fluctuation of market values. 

Aside from lease to own, and installment purchase from the owner can you please give me insight into other ways a seller would like to offload their properties without a huge tax hit.

**"Consult with a CPA first before...."

Thank you,

Jake

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Jay DeCima
Redding, CA · Member since 2016 · 224 posts · 143 votes
9y

Jake,

Yes I can.

It is called "pajama money".

Let me explain.

At my "high mark" I had 250+ rental houses in Northern Ca.  I did not buy them one at a time.

I developed "my way of investing".  I buy groups of houses (usually 5+) on a single parcel, needing work.  The seller knows that over 5 units and needing work, that I will NOT be able to get bank loan.

So I have the seller take back the financing.

I do lots of things in between you increase value and rents............but when I sell, I want "pajama money".  I will only sell with my seller financing.  Each month I can collect mortgage checks, made out to me, from my mail box......in my pajamas.  I am in control.

Also, I DO NOT WANT TO TAKE BACK THE PROPERTY FOR THE BUYERS.  I want them to be successful.  I will sell with a low down, and structure payments to no be more than 50% of monthly rents.  Yes, doing that may have me charging a lower than market rent..........but in exchange, can I raise the price?

You bet I can.  Most newer investors on BP would jump at the opportunity to buy a group of house with good cash flow and a higher price.

You mentioned taxes.  Even though I raised the price to offer good terms, I only pay taxes on the principal part of the payments.  Remember, at the end of my career, I no longer need a big chunk of cash.  I can collect monthly mortgages for 10 or 20 years and not realize the entire capital gain.

If i get called to the "final closing" (that's death) my heirs take over the property at the value it is worth today and their basis is pegged to today's value.

Advice to you. Figure out how to do this and forget about teaching boomers about leaving real estate.  What are you going to tell them.....buy stock.  Don't waste your time.  Choose what has worked for a long, long time..... Buy and hold (and add some new twists to the philosophy.

That's the 'ole timer in me offering the advice.

Good luck.

Let me know if I can help.

Fixer Jay DeCima

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  • Rocky Griffin
    Flipper/Rehabber · Edmond, OK · Member since 2016 · 209 posts · 107 votes
    9y
    Interesting subject. I'll be following this discussion.
    0Reply
  • Vivek Khoche
    Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
    9y

    @Jake Decker - It's great that you are working on strategies for a baby boomers who want to leave REI, In my opinion you are restricting your opportunities. I would rather focus more on area and strategies where that you feel will work where others have given up.I come across distressed properties everyday in many markets. I doubt anyone would like to sell you good investment, if so you need to pay premium.

    Following link would give you an idea of issues around REI in cash flow markets, a good starting point.

    https://www.biggerpockets.com/forums/311/topics/227602-difficulty-selling-rental-properties-at-loan-amount

    Good Luck Investing

    Vivek 

    1Reply
  • Jay DeCima
    Redding, CA · Member since 2016 · 224 posts · 143 votes
    9y

    Jake,

    Yes I can.

    It is called "pajama money".

    Let me explain.

    At my "high mark" I had 250+ rental houses in Northern Ca.  I did not buy them one at a time.

    I developed "my way of investing".  I buy groups of houses (usually 5+) on a single parcel, needing work.  The seller knows that over 5 units and needing work, that I will NOT be able to get bank loan.

    So I have the seller take back the financing.

    I do lots of things in between you increase value and rents............but when I sell, I want "pajama money".  I will only sell with my seller financing.  Each month I can collect mortgage checks, made out to me, from my mail box......in my pajamas.  I am in control.

    Also, I DO NOT WANT TO TAKE BACK THE PROPERTY FOR THE BUYERS.  I want them to be successful.  I will sell with a low down, and structure payments to no be more than 50% of monthly rents.  Yes, doing that may have me charging a lower than market rent..........but in exchange, can I raise the price?

    You bet I can.  Most newer investors on BP would jump at the opportunity to buy a group of house with good cash flow and a higher price.

    You mentioned taxes.  Even though I raised the price to offer good terms, I only pay taxes on the principal part of the payments.  Remember, at the end of my career, I no longer need a big chunk of cash.  I can collect monthly mortgages for 10 or 20 years and not realize the entire capital gain.

    If i get called to the "final closing" (that's death) my heirs take over the property at the value it is worth today and their basis is pegged to today's value.

    Advice to you. Figure out how to do this and forget about teaching boomers about leaving real estate.  What are you going to tell them.....buy stock.  Don't waste your time.  Choose what has worked for a long, long time..... Buy and hold (and add some new twists to the philosophy.

    That's the 'ole timer in me offering the advice.

    Good luck.

    Let me know if I can help.

    Fixer Jay DeCima

    3Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    9y
    Originally posted by @Jay DeCima:

    I will only sell with my seller financing.  

    If i get called to the "final closing" (that's death) my heirs take over the property at the value it is worth today and their basis is pegged to today's value.

    Hi Jay - if you seller finance you own the note not the property any longer so at your death I don't see how your heirs would get the step-up basis? They would simply continue to collect on the note right?

    1Reply
  • Jay DeCima
    Redding, CA · Member since 2016 · 224 posts · 143 votes
    9y

    Gautam

    Wow, you should be the teacher here.

    You are correct in your statement on owning the note and not the property.

    I would just say, let's go with your way of looking at it for now.

    I probably got a little advanced in my comment about basis. If I offered a seller carry back note and then died and my heir took over the note.............then the person paying the note defaults and I foreclose, there are some complicated calculations regarding principal, interest and taxes. Let's not go there for now.

    Thanks for your insight and follow up. It sounds like you know a little bit about this real estate stuff.

    Let me know if I can help you in the future.

    Fixer Jay DeCima

    0Reply
  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    9y

    Hi @Jake Decker, 

    We see lots of investors that wish to get out of real estate but do not want to get killed with capital gain, depreciation recapture and Medicare Surcharge taxes. They are always looking for various strategies to get out of the real estate without incurring the income tax consequences.

    Here is a quick list of some of the more common choices that investors use to get out of real estate when they no longer want to manage property and/or deal with tenants:

    • Seller Carry-Back Financing
    • Net Lease Properties (NNN or often referred to as triple net properties)
    • Tenant-In-Common Investment Properties (TICs)
    • Delaware Statutory TrustInvestment Properties (DSTs) 
    • Charitable Trusts (often referred to as CRTs)

    There are of course pros and cons with any type of asset class or specific investment. Investors need to do their own due diligence in order to understand the various pros and cons with each investment option.

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.826 Reviews
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    1Reply
  • Gautam Venkatesan
    Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
    9y

    Hi @Jay DeCima lol I am no where near your level of expertise, loved your books! Any advice you share here is appreciated. Thanks for clearing up my confusion.

    0Reply
  • Jake Decker
    OP
    Salt Lake City, UT · Member since 2017 · 6 posts · 2 votes
    9y

    To everyone that wrote on this string. Thank you. I am grateful for your insight and willingness to share your knowledge. This has helped me a lot as I continue to work things out and refine beneficial strategies for me as well as providing ideas for others.

    I welcome more comments below as well.

    Cheers,

    Jake

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