First-time poster. My wife and I are new investors, looking to buy single-family or small multi-family in the Northern suburbs of Fort Worth. In the 7-habits of highly effective people, Steven Covey states you should start with the end in mind. My question is for landlords who are "retiring" from the real estate investing or approaching that point in the next few years. What is the exit strategy for someone who has built a portfolio of 20 or fewer units, and wants to retire from the business?
Interesting question @Toyosi Ogunkua there is no correct way. If you like the game then there is no reason to stop. The 2 bigger investors I knew kept buying their entire lives, well into their eighties. Do you have family to pass it along to?
Another thought is to sell starting in your 60's maybe 1/4 of your holding every 10 years and spend money.
I sell when a property becomes a PITA.
When I was driving city bus one of the drivers said to me well if you need money you can always sell a house. I never forgot that. Occasionally I would borrow on one.
If you sell, you pay capital gains on the upside. If you leave it to your heirs, the upside is part of your estate, subject to estate tax exclusion. And then your heirs will get the properties with the cost basis set at that time. Seems like that is a good reason not to ever sell.
We're in our early 60's and are still building our portfolio. We did sell one house to a tenant on a seller financed deal. That is really passive as we just get a mortgage payment each month. Our "exit strategy" would be to do more of those (seller financing) and perhaps selling some outright if we needed cash. However, the rentals are going to be the basis for our income (as they are now, we have no other jobs) so if we got to the point we couldn't manage them anymore, we would probably turn them over to a management company.
We have very little leverage as we essentially have been purchasing "cash flow" and of course there's more of that with no mortgage payments.
Multi family is touted often on these forums and of course has advantages but SFR is by far the easiest to get in and out of as the market is broad, not just other investors.
And don't forget about depreciation recapture when you sell!
Some choose to sell their portfolios and invest in more passive assets, like syndications, funds, triple net properties, or notes. There are options to 1031 exchange and defer captial gains when selling and investing in these other strategies.
Some folks hold until they die and pass to their heirs, which has a ton of advantages as well. But the disadvantage that you might be sick of managing properties in your 80s, so property management is a good choice.
Buy properties in areas with good long-term prospects: growing population, diverse industries and economy. There are many small towns around the country where property values have fallen or not substantially grown over the long term because industry, jobs, and therefore people, left.
@Toyosi Ogunkua . I am not at this stage of my career with investing but I took a great deal of interest in the same question as we began accumulating properties. One option that I find very attractive is called a Delaware Statutory Trust. These “syndications” are professionally managed real estate buildings or portfolios of differing types of real estate assets. A number of reputable firms set these up and you can 1031 exchange into them almost at any time. There is a minimum buy in and that may vary but these just kick off monthly amounts to you in proportion to your buy in. It allows you to sell each of your holdings at a peak. They typically hold the asset for 5-10 years so you are in it for that period and then there is a profit split when they sell. They will typically have their next buy in place so they can roll your money over again 1031 into the next holding. This can continue for as long as you like and you get paid with no tax on the exchanges and your heirs get it tax free when you pass. There are some downsides with fees and such so research completely but I was blown away by this option.
"What is the exit strategy for someone who has built a portfolio of 20 or fewer units, and wants to retire from the business?"
Depends if you have someone (e.g. children) then I'd recommend a trust for tax free transfer upon death. Otherwise, you can leave them the property (CHECK WITH YOUR TAX PROFESSIONAL) and upon death they'll get a step-up in basis to avoid a lot of cap gains.
Hi, I am new to Real Estate Investing. This was a question I had as I developing my business plan. Thanks for the question and all the responses. This was very helpful for me.
You can look to doing seller financing.
Seller financing your investment properties can be considered more passive and have less work involved.
Or you can have a discussion about passing the real estate investments to your family.