All Forum Posts by: Tandi H.

Hi @Dave Foster thanks for your response.  

Wondering, could you explain: 

1. "if you run your proformas out the life of the asset you do in fact not pay any tax"?  
2. Also what do you mean by the charity becoming the benefactor of the tax?

The exit strategies that I've learned about so far are:

• 1031 exchange into passively managed RE property - then these properties could be passed on to heirs with step up in basis as you mentioned.  I think that's what you're recommending Dave as the best option.
• 1031 exchange into personal property (eg a vacation home) - you'd need low value properties to sell, and high value that you want to purchase, for the total values to be equal.
• Sale on contract - you would still pay taxes, just more distributed over years, correct?  Is there depreciation recapture too?
• Normal sale - you pay both tax and depreciation recapture
• Reverse mortgage - not sure if these are possible with investment properties, but maybe?  

@Eric James - yes, that's what I understand.  It's an amazing loophole for heirs.

@Paul Caputo - thanks!  I will send you a PM.

@Paul Caputo - thanks for providing more details!  Yes, we do have whole life cash value policies in place as well.  I am imagining that we would want to sell our properties in a couple decades to provide additional annual income.  Distributions over time would be perfect for that.

So to reiterate:  with a charitable remainder trust you give 10%+ to charity, and take distributions over time on the rest?  And avoid taxes?  That sounds awesome!  I would much prefer to give 10% to charity than pay taxes, which I imagine would be more than 10% in any case.  

Is there any set up needed 10-20 years in advance of the desired sale date for the properties?  Or can you just wait until you are getting ready to liquidate, take the time needed to set up the trust (perhaps a year or two in advance of sale), then proceed?  

Thanks!

I know this thread is old but I'm very interested in tax advantaged exit strategies for buy and hold investments.  Not sure if the OP is still around - in any case perhaps others have some knowledge and experience to share.  

I've heard about the concept of:

• setting up a trust (family trust perhaps? not sure of type?)
• putting the property into the trust (what does that involve and are there any tax consequences to this step?)
• and then the trust sells the property.  

The original investor is the beneficiary of the trust and can withdraw funds.  I would assume there are limits or conditions to those withdrawals.  Perhaps that has to do with OP comment about limits of 10% distributions each year.

We are in the growth phase of REI and are thinking down the road, perhaps 20-25 years, when we may want to liquidate our properties for whatever reasons. Can anyone comment more on this exit strategy and provide more details?

@Natalie Kolodij - sounds like you are a RE tax strategist - can you comment on what your company does for these situations?

I would second everything that @Mark Hughes said - great summary and insights into the ABQ market.  

We have two rental properties (SFR, Duplex) in the UNM/Nob Hill area. Not sure on cap rates @Sergio Castillo, however I see small multi families in the B class areas selling for around 100k per unit, but rents are typically under $1000k (more like $700-800) so they don't meet the 1% rule.  Small multi families in C areas are significantly cheaper (a triplex for under $200k, rents at $550-650) and sometimes meet the 1% rule.  With crime already an issue throughout the city, personally I wouldn't purchase in these areas.  

@Sergio Castillo - what do you see in Santa Fe in terms of investment opportunities, prices per unit, etc?

If I may add to the OP's question on whether to collect SS#....

Once I have a good possible applicant, and have met them personally and everything looks good to move forward, I have them do the application on TransUnion SmartMove.  If SmartMove says to accept them, I scroll through the credit report to get a general sense of their income and debts.  If that looks good to me, (and so far I haven't had any bad applicants at this stage), I invite them to rent the unit.  They fill out a lease which doesn't have any personal info, just the agreement, their signature, and their emergency contact.  That's it.  I don't take their SS#, DL#, nothing.  Am I setting myself up for problems?  What personal info do you need from tenants and why?

Our strategy is to provide nicer-than-average rentals, in a B neighborhood.  We charge at the upper end of the price range for our area because of this.  We put in curtain rods for most windows, and cellular shades when the window location requires more privacy (bedrooms, busy streets, etc).  The plastic mini blinds are just so cheap looking (and dust collecting), I feel they bring down the appearance of the rentals.  

For curtain rods we get inexpensive "lock seam" curtain rods that are style-neutral and can be found at home depot or amazon.  Putting in curtain rods means we don't have to patch holes after renters move out.  We also provide some Command sticky hangers at move in, and ask renters to use them instead of putting holes in the walls for hanging pictures etc.  Our rentals include older homes with hand-done plaster textures that are hard to replicate when patching.

We are in our first round of renters so time will tell if this is a good method or not.  So far our renters are very respectful and willing to pay more for a better quality home.

@Account Closed is saying the same thing - a HELOC is not a fixed rate and is not predictable like a refi.

@Account Closed

#3 - other options. I have a totally different approach for you to consider - refi your house, pull out 75%, and use that for your next REI purchase(s). This may be counter-intuitive to how most of us were raised (pay off your mortgage as soon as possible) but it actually makes sense. Think about this:

- Interest rates are still low, you can probably find a refi around 3.75%

- leaving 25% in equity will avoid mortgage insurance

- 3.75% on an owner-occupied primary home mortgage is less interest than you will pay for a HELOC

- you'll now have a bunch of cash available for multiple REI's, for rehabs, etc

- leaving equity in your house is not earning you money - at the minimum, you could even park it in mutual funds and make 7-8%. Less 3.75-4% on the loan earns you 3-4%. REI can net you even more.

Just another approach to consider. 

@Zachary Wilson

I love your technique!  It's fair, transparent, and cordial.  Thanks for sharing!