Land-lording exit plan

[Pixel Rogue]

Hello everyone,

Looking for a thoughtful exit plan from land-lording. Been at this business for 20 years and there is more to life than wearing maintenance and cleaner hats al the time. This was originally a 5 year plan however covid, cost and purchase availability have extended the timeline. Thinking others here have gone through this phase or maybe thinking about for themselves...what would you do? Pros/Cons? What other ideas are there?

Data Points
• Partner and I are gainfully employed, no children.
• Considerations of retiring early (next five years.)
• Goal to minimize tax obligations
• Post full retirement, keep reportable income to a minimum until retirement age.

Part A - Primary Residence
Main component of the plan is to purchase a forever home, ideally wanting some type of duplex such as cape cod so some of the expenses are covered over time. This would be via 1031 exchange, renting out out for a few years as we plan the move.
Pro - place to live, provide a home base to be between travels. If a duplex, expenses minimized and know the place will have someone around as we travel. 
Con -  if rented income from having 1/2 of the duplex rented (and additional income from properties we decided to keep.)

Part B
We have other investment properties and deciding which/if to keep longer term...less maintenance and day-to-day. What else?

One idea is to 1031 them into a REIT (think Fundrise/CrowdStreet.) One ‘featured benefit' such companies promote is the ability to bring over/match the debt ratio such as a given mortgage on the relinquished property - not clearly understanding the full value of the debt in these situations. 
Pros - available 1031 opportunity with no land lording day-to-day
Cons - TBD reported income on quarterly/annual basis. 

Select a property or two to sell off raw - take the Uncle Sam lumps on the chin.

Part C
If we end up with windfall, how do people invest w/minimal tax obligation beyond say a Muni mutual fund? Tax efficient strategies to invest aftertax dollars for the long term. 

Part D
We have been approached by someone interested in purchasing one of the investment properties. Fantastic we said AND we have been actively looking for 4 years for that forever duplex or smaller single-family home w/o success. This particular property would need to be 1031. We have kept our eye on other investment properties as well which have been few and far between and we wouldn't be up to sell one great investment to pick up others when we are looking to gracefully exit.

The REIT option above could work, doing a 1031 exchange into the REIT. Given we are both gainfully employed any additional reported income would be an unwelcome risk to tax brackets.

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Side note - this text field is quite buggy on the iPhone iOS 15.xx

[Dave Foster]

@Pixel Rogue, In really broad terms there are real estate investments and other investments. They're not meant to work together easily. And there's some real downsides. Which is why the 1031 into a REIT is not a common occurrence for true real estate investors. First you have to do a process called a 721 exchange or "upreit". Second you lose some of the tax benefit of real estate ownership (and since you're good earners now you really want those benefits to continue. Once you own the reit also. you can never sell without paying the tax. No more 1031 option. This is why most investors continue with 1031 tax deferral and go into passive but 1031 compliant opportunities. We tend to keep our real estate investments separate from equities and non- real estate things like lending. And not let them mingle.

This is also why investors that can afford it will not buy real estate in their 401Ks.  Those are for investments that would not be tax advantaged outside the retirement plan.  Outside the retirement plan we invest in real estate to harness the tax advantages.

Passive investments that will qualify for 1031 treatment include

1. Delaware Statutory Trusts

2. NNN commercial properties

3. Syndications that allow Tenant in common ownership

4. Tenant in common projects conforming to Rev Proc 2002-22

5. Oil and natural gas projects

6. Ground leases