1031 options for retirement

Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes

My husband and I own 3 properties and are nearing retirement. We'd like to be done landlording, and don't want to have loans. Each property has a loan currently.

1. Can we sell one property (and not 1031 it) to pay off the loans on the other 2, then sell the paid off properties as 1031?

2. What options do we have that require less involvement than conventional rentals?

Thanks!

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

4mo

Quote from @Gretchen P.:

My husband and I own 3 properties and are nearing retirement. We'd like to be done landlording, and don't want to have loans. Each property has a loan currently.

1. Can we sell one property (and not 1031 it) to pay off the loans on the other 2, then sell the paid off properties as 1031?

2. What options do we have that require less involvement than conventional rentals?

Thanks!

Hmmm,

Invest in a Fund that you have ZERO control over or just hire a PMC that you should only need 2-4 hours a month overseeing their management of properties you own & 100% control?

Oh wait, PMC's charge 10% plus other fees, so maybe 15-20% total annually.

But, how much will the 1031 cost and the Fund fees be?

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Ryan FlanaganPro Member
Accountant · Naperville, IL · Member since 2020 · 39 posts · 24 votes
4mo
Delaware Statutory Trusts are an option to defer taxes via 1031 and become a passive investor. Relative to operating your own real estate, returns will be slim. Also you'll probably want to heavily vet the particular DST as handing your money over to someone to manage is a much bigger gamble than managing it yourself. I would imagine the due diligence you'll do is similar to what you would do when vetting a syndication. I have personal experiences with syndications, but none with a DST.
1 Reply
Ryan Coon
Attorney · Spanish Fork, UT · Member since 2025 · 77 posts · 97 votes
4mo
Gretchen, you’re in a great spot to transition to passive income. To your first point: Yes, you can sell one property to pay off the debt on the others. This actually simplifies your future 1031s because you won't need to meet "debt replacement" requirements on the remaining properties.

Beyond the DST mentioned earlier, you should also consider an UPREIT (Section 721 Exchange). Both are solid passive options, but they function differently:
- UPREITs: These involve trading your property for shares in a large, institutional fund. They offer massive diversification and can be more reliable due to their scale. However, this is the "end of the line" for tax deferral. Once you move into an UPREIT, you cannot 1031 exchange out of it later; your eventual exit will be a taxable event unless you own the asset when you die in which case the step-up in basis would wipe out the deferred taxes.
- Delaware Statutory Trusts (DSTs): These are fractional interests in smaller, specific projects. Because these are often more temporary investments, it is critical to vet the specific deal. The major advantage is that a DST is not the end of the line—you can 1031 exchange out of a DST into another property or another DST in the future.
Regardless of which path you choose, due diligence is everything. Since you are trading management control for passivity, you must thoroughly vet the sponsor's track record and the specifics of the deal before committing your equity.
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Brandon BruckmanPro Member
Financial Advisor · Milwaukee, WI · Member since 2018 · 110 posts · 96 votes
4mo
Adding on, depending on your debt and equity situation you could sell the properties, perform a 1031 exchange and use DST as the replacement property. Debt on DSTs are non recourse to investors. Stepping back, I'm curious why you want to pay off the mortgages.
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Gretchen P.
OP
Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes
4mo
We'd want to pay off the mortgages to simplify things. Plus we'd be going from 3%-4% mortgages to current rates.

How could we keep a mortgage if we are investing in something like an UPREIT or DST?
An option I would love would be to invest in assisted living houses, but as a passive investor, I don't want to run them. Is that possible? If so, we could keep the mortgages.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4mo
Unfortunately by “keep the mortgages” they mean keep having A mortgage. Not the mortgages you already have, or they misspoke. You are correct, you’d have to get new mortgages at much higher rates.
Is there any chance you don’t already live in your dream home? You could sell that, tax free up to $500k gain and combine it with the 1031 to buy a dream property that also has a rental component. (2-4 unit, 2+ structures on one property, etc.). You’d still have to spend more than you sold on the rental portion. But you’d have the tax free primary home sale proceeds to cover the existing debt.
The problem with the DST is most have an end date in mind where they plan to sell and you'd be stuck doing another 1031 or paying the taxes the. The problem with the DST and the UpReit is going to be much lower returns than you're used to. You have to make sure the tax savings are worth lower returns for the rest of your life. There's always the option of a NNN lease to someone like dollar general or Starbucks for hands off money. But more and more of these "mailbox money" investments have been shutting their doors than ever before.
Do you hate your current investments or are they just performing badly? (Why you don’t just sell one and pay of debt if it bothers you and keep other 2 with a property manager?) I only have a dozen properties but I literally spend less than an hour a month dealing with them. And that’s all emails/texts.
Is there a place you’d like to own a property where any returns would just be a bonus? Setup a furnished MTR in Hawaii, Myrtle Beach, a ski condo, Florida, etc etc? You’ve got lots of options. But don’t do something, just to do something. Make sure you have a problem worth solving. Real estate investing can be VERY boring and the need to do something very strong. Good luck with whatever you choose. Make a choice and consider it a win, don’t look back.
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Gretchen P.
OP
Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes
4mo
Yes I meant keep a mortgage, I know it would be a new mortgage at current rates. I phrased that poorly.
1 Reply
Gretchen P.
OP
Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes
4mo
Thanks for all the great feedback.
Our current investments are good, but we are in a state that is becoming more hostile to landlords generally. There are 3 properties, one is a triplex with all mid-term rentals, one is a triplex with one mid-term and 2 traditional rentals, another is a house and cottage with 2 traditional rentals. We have 50-60% equity in all of them.
Property management is a good first step. We did a 1031 on our future snowbird residence, and have it renter occupied for the past 4 years. When we retire in the next year or two, we will spend half the year out-of-state, so will need management.
1 Reply
Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 905 votes
4mo
Quote from @Gretchen P.:

My husband and I own 3 properties and are nearing retirement. We'd like to be done landlording, and don't want to have loans. Each property has a loan currently.
1. Can we sell one property (and not 1031 it) to pay off the loans on the other 2, then sell the paid off properties as 1031?
2. What options do we have that require less involvement than conventional rentals?
Thanks!

You can absolutely sell one property and use the proceeds to pay off the others before later doing a 1031 on the remaining properties, but definitely talk with a good CPA and qualified intermediary before moving anything, because timing and how proceeds are handled matter a lot. A lot of investors nearing retirement also start shifting away from active landlording into lower-management options like turnkey rentals with strong PMs, NNN leases, DSTs, or smaller multifamily in stable Midwest markets where cash flow is steadier, and management tends to be simpler. The biggest thing is deciding whether your priority is maximizing income, reducing stress, or fully going passive, because that usually determines the best exit strategy.
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John M.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes
4mo
Dst's only pay about 5%. You can get double those returns by investing in private credit with some of the largest private equity firms in the world and be totally hands off. This way you don't have to worry about doing multiple 1031's and their associated fees. PM me if you like.
1 Reply
Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 897 votes
4mo
Delaware Statutory Trusts are one of the more common ways to defer taxes through a 1031 exchange and step into a passive position, but the tradeoff is that returns are usually slimmer than what you're used to operating your own properties, and you're handing the keys to a sponsor — so the due diligence on the specific DST should look a lot like vetting a syndication, including the sponsor's track record and the specifics of the deal. The right path depends on your full retirement picture, so I'd talk it through with your own CPA before committing.
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
4mo
Have you considered seller financing? In the year of sale, you have to pick up the depreciation recapture but the rest of the gains get deferred out.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
4mo
Quote from @Gretchen P.:

My husband and I own 3 properties and are nearing retirement. We'd like to be done landlording, and don't want to have loans. Each property has a loan currently.
1. Can we sell one property (and not 1031 it) to pay off the loans on the other 2, then sell the paid off properties as 1031?
2. What options do we have that require less involvement than conventional rentals?
Thanks!

Hmmm,
Invest in a Fund that you have ZERO control over or just hire a PMC that you should only need 2-4 hours a month overseeing their management of properties you own & 100% control?
Oh wait, PMC's charge 10% plus other fees, so maybe 15-20% total annually.
But, how much will the 1031 cost and the Fund fees be?
[email protected]248-209-6824
Logical Property Management4.9450 Reviews
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3 Reply
James JonesPro Member
Investor · Collierville, TN 38017 · Member since 2017 · 589 posts · 445 votes
4mo
Definitely talk to a CPA and a qualified intermediary before you pull the trigger, but here's the general lay of the land.

On question 1, yes you can sell one without doing a 1031 and use those proceeds however you want, including paying off loans on the other two. Just know that property gets hit with full capital gains plus depreciation recapture, so run the numbers first to see what the tax bill actually looks like. Sometimes it's smaller than people expect, sometimes it's brutal depending on how long you've held and how much you've depreciated.

The bigger thing to watch is when you 1031 the other two later. The IRS requires you to replace both the value and the debt. If you 1031 a paid-off property worth $400k, your replacement has to be $400k or more, all equity, no new loan needed. That part trips people up.

On question 2, a few common landings for folks in your spot:

DSTs (Delaware Statutory Trusts) are the most popular hands-off 1031 target. You exchange into fractional ownership of larger commercial properties, get monthly income, zero management. Downside is you give up control and they're illiquid for 5-10 years.

Triple-net (NNN) leases are another option, single-tenant commercial where the tenant handles taxes, insurance, and maintenance. More control than a DST but you still own a real building.

Some people also look at 721 UPREIT structures, where eventually your DST rolls into REIT shares for more flexibility down the road.

Last thought, if your real goal is "be done landlording and have no loans," sometimes the cleanest answer is just to sell everything, pay the tax, and be free. The 1031 only makes sense if the after-tax math actually beats taking the hit now. Worth modeling both paths side by side with your CPA before deciding.
1 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
4mo
@Gretchen P., This strategy would be perfectly fine! What you'll want to do if you pursue this would be to 1031 the two that have the lowest basis and least equity. This allows you to roll forward the maximum profit. while you simply sell the property with the highest basis (least profit) and greatest equity (so you get the most cash out).

As others here mentioned, you have several options to choose from to achieve passive investing. If you want to reinvest in another investment property, you could do an NNN lease option, or, as @Bill B. mentioned, find a property you would one day want to retire in and convert to your primary residence. This would allow you to one day leave it for your kid or grandkids to inherit at a stepped-up basis, and the tax simply goes away.

If you think you'd rather invest in passive opportunities that qualify for 1031 treatment, there are DSTs and upreits, but with the DSTs, you have the option to 1031 into them, and once the project matures, you could 1031 into another DST or back into brick and mortar if you wanted. Once you go into a UPREIT, you will pay the tax as soon as you sell it. So they're not the best option many times if you want to keep the tax deferred for life.
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Jon Taylor
Pasadena, CA · Member since 2019 · 136 posts · 148 votes
4mo
@Gretchen P., A lot of the comments in this thread are debating DSTs vs paying the tax, but honestly I think every investor should do three things before making any decision here.
First, calculate what your actual tax liability would be if you sold and paid the tax. Not just capital gains, but the AGI ripple effects across your entire return.

Second, figure out your real current cash flow on the rental portfolio today. Most people end up comparing projected numbers against actual lived performance, which isn’t really apples to apples.

Third, run a break-even analysis on paying the tax. You can stress test all the assumptions people are throwing around in this thread and see what actually has to happen for one path to outperform the other.

I do these exercises on my own portfolio regularly because they force clarity pretty quickly.

If it’s helpful, I’d be glad to share the Excel model I use. Just DM me.
1 Reply
Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
4mo
Hey Gretchen! These are great questions and it sounds like you're thinking through this really strategically as you head into retirement.

On your first question, like others have said, yes, you can sell one property without doing a 1031 and use those proceeds however you'd like, including paying off loans on the other two. There's no rule that says all properties have to be treated the same way.

Once the other two are paid off, you could absolutely 1031 those into other properties. The key is making sure you follow the 1031 timeline and identification rules carefully, and that the replacement properties are like-kind and of equal or greater value.

On your second question, there are some really good options for lower-involvement real estate in retirement. A few worth looking into would be a Delaware Statutory Trust (DST), which lets you 1031 into a passive ownership structure with no landlord responsibilities, or a Net Lease commercial property (like a triple net lease) where the tenant handles most expenses and management. Some investors also 1031 into larger syndications or REITs depending on their goals, though not all of those qualify for 1031 treatment.

Definitely loop in a CPA and a qualified intermediary before making any moves so everything is structured correctly. Happy to connect!

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Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
4mo
I'm planning to avoid calesthenics related to paying taxes when I retire. There comes a time to pay up and frankly I appreciate being in a financial position where it really doesn't move the needle in the big picture. Kudos for having insight into the challenges of managing RE into old age. Enjoy this next phase of life!
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 430 posts · 93 votes
4mo
@Gretchen P., hi. You can potentially sell one property to pay off the other loans, but any properties intended for a 1031 need to follow the proper exchange rules and use a qualified intermediary. Be mindful of taxable boot if debt is reduced and not replaced.

For a less hands-on retirement option, consider DSTs, triple-net leases, or professionally managed properties. Model both options: selling and paying the tax versus using a 1031 for passive real estate.
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Lisa Peters
Member since 2026 · 3 posts · 0 votes
2mo
@jon taylor
Could you send me that spreadsheet, please?
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Lisa Peters
Member since 2026 · 3 posts · 0 votes
2mo
@jon taylor Could you send me that spreadsheet, please?
0 Reply
Lisa Peters
Member since 2026 · 3 posts · 0 votes
2mo
@JonTaylor Could you send me that spreadsheet, please?
0 Reply
Patrick CissnePro Member
Member since 2026 · 2 posts · 0 votes
2mo
There are already some good suggestions here regarding property management and 1031 exchanges. Both can be great options depending on your goals.

Reading your post, though,you said you're nearing retirement, want to be done landlording, and don't want loans anymore.

That tells me your decision is probably bigger than just "How do I defer taxes?"

I'd encourage you to first decide what a successful retirement looks like. Questions I'd be asking are...

Do you want to eliminate the headaches of managing real estate completely? Will you need the rental income to maintain your lifestyle? How important is liquidity? Is leaving these properties to your children part of the plan?

A 1031 exchange can be a great tool if your goal is to stay invested in real estate and defer taxes. Hiring a property manager can be a great solution if you're just tired of the day-to-day work.

If your goal is to retire from being a landlord altogether, I'd encourage you to evaluate all of your options before automatically exchanging into another property. Sometimes the best answer to being done landlording is simply designing a retirement plan taking into consideration, income, taxes, liquidity and legacy.

Whatever path you choose, I'd recommend talking with a CPA and a financial professional before making any decisions. There are a lot of moving pieces, and planning upfront can make a significant difference.
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Jon Taylor
Pasadena, CA · Member since 2019 · 136 posts · 148 votes
2mo
@Lisa Peters i’d be happy to. Please DM me.
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