Looking for Ideas on Income Properties

[Douglas R.]

Good evening. I purchased 1,772 acres of Oregon dry land wheat acreage in late 2014 and since then it has significantly appreciated in value (approximately 800%) owing to newly-available irrigation and the fact that it is ideal ground for potato production. I will have the option to sell for around $8-9m in about a year and have already been approached by two prospective buyers.

I am thinking of a 1031 Exchange and wanted to ask your advice: if you were in my position and wanted to support your family with a safe, reliable income-producing real estate investment what path would you take? I am attracted to the idea of just buying more agricultural land and leasing it out to a producer for a share of the crop, as it seems safe, but realize that there may alternatives outside of ag that have the potential to net $500k or more annually from a $8-9m investment. Location and other particulars do not matter as much as ensuring reliable income.

Thanks! Have a great weekend.

[Tyler Kastelberg]

@Douglas R.

Douglas: You hit a gold mine - congratulations!

You're wise to highlight "reliable" income as a goal. I'd recommend a cash purchase of a Class B/B+ office or multifamily asset. I can't speak for Oregon, but on the east coast, you should be able to achieve a 7% to 8% cap rate, which would net you significantly above $500k on an $8 million to $9 million investment. 

Find a trusted asset manager to monitor your properties, and enjoy the passive income that is generated.

Best of luck! DM me if you have any further questions.

[Dave Foster]

@Douglas R., The world of large commercial scares people who have cut their teeth on residential.  They look around and see renters everywhere.  But the thought of owning a larger commercial asset scares them so it's "riskier".  

But in the world of commercial where you will live price point wise there are plenty of opportunities to earn that kind of money with a nationally corporate guaranteed lease of 15 - 20 years plus rent escalators and net of all expenses.  

The biggest difference is in even the best of MF opportunities you have to have a constant flow of applicants.  Renters come and go.  And with each renewal you are subject to the market forces that dictate rent, taxes, insurance and capital expenses.

With the right commercial NNN opportunity you own the asset. The income is net of all expenses. The lease is guaranteed for a much longer term. And external market impact will only depend on the capitalization and health of the guarantor.

Passivity, reliability, longevity - that's what you're looking for now.

Now if only it would snow on my Kansas wheat I could think about irrigation too!!!

[Thomas Rutkowski]

@Douglas R. A good solution for you might be to use a Monetized Installment Sale instead of a 1031 exchange. This would allow you to defer the taxes on the sale of the land but get cash at closing that you can deploy in any way you want - you don't have to get back into real estate. In a monetized installment sale you defer the taxes by selling on an installment contract (seller financing) through an intermediary. 

[Douglas R.]

Thanks, everyone! Apologies for the delayed response, your feedback is very helpful.