Archive for September, 2016

Comments Off on One More Way To Exchange Your Captial Gains: Without The Management Headaches

As many seasoned investors approach retirement, they become less interested in dealing with the down sides of duplex investment; mainly tenants, trash and toilets.

The problem with long term real estate investment is when you no longer wish to be a landlord, the IRS believes you should compensate them for your exit strategy – through capital gains tax and depreciation recapture.

Of course, there is a way out through a 1031 or Starker Exchange. But what, if like so many others, real estate is such a great investment and you have so many properties that you can’t find a property with no to little management to exchange your money into?

Enter tenants in common (TIC) investment, which we detailed last week, and Delaware Statuatory Trusts (DST).

A DST are derived from Delaware Statutory law as a separate legal entity which is created as a trust, that qualifies for a 1031 exchange. A real estate sponsor firm simply buys a large property under the DST umbrella and opens up the trust  to potential investors, who may purchase an interest.

Because up to 100 investors or more may be pooling their money, the assets in a DST are usually large institutional properties that most investors could not afford on their own. For example, a DST property may be a 500 unit apartment complex, a large shopping mall, or a large, prestigious office building in a desirable location.

There are a couple of advantages to investing in a DST, rather than in a Tenants in Common property. First, because DST’s may have more than 35 investors, the size and quality of the property may not only be greater, but the cost per investor may be considerably lower as well.

Lenders prefer DST’s as well. With a TIC, each investor gets their own loan for their share of the property. In a DST, however, there is one loan, which gives lenders greater security.

Of course, with any type of investment, you should be sure to do your due dilligence on not only the financial performance of the property, but also the sponsor of the DST.

As always, be sure to talk with your tax advisor before you sell a duplex, triplex or fourplex so you know the potential tax ramifications; if any.

 

Comments Off on How To Sell Your Duplex And Own Investment Real Estate — Without the Headaches of Property Management

Where to Invest?Things in life change.

For many long term Minneapolis and St Paul duplex sellers, those changes include coming to a time when children, grandchildren, or a simple desire to simplify life mean an interest in selling their investment property.

The challenge in doing so, however, is the often substantial capital gains tax and depreciation recapture, which can leave many duplex sellers with very little to show for decades of toil.

That leaves you with a 1031 exchange into another piece of real estate. That is, if you can find one that makes financial sense.

Aren’t there alternatives?

Yes!

We recently discussed NNN properties, which afford investors rental income with stable tenants and very few management demands.

That isn’t the only option available however.

In recent years, a popular real estate investment alternative has become tenancy in common investments, often referred to as a TIC. This is a property that is co-owned with a pool of other investors. And, since the taxpayer gets a deed to real estate as a tenant in common, it qualifies for a 1031 exchange.

With the pooled resources of multiple investors, many TICs are able to purchase larger commercial properties with established tenants, while management responsibilities are handled by management companies.

Syndicators of TICS are called sponsors. Investment opportunities can be made directly by the sponsor or by brokers. Most sponsors treat TICs as if they are securities, as they meet the definition in the state or states the properties are located in. In spite of this, TICs still qualify for 1031 exchanges.

It’s important to know that while TICs are a great real estate investment that don’t require hands on management, they aren’t as liquid as a property you own alone. It’s also crucial you check on the credibility of the sponsor and his or her track record.

If you are thinking about selling your duplex, call or email me today. The market is hot, and there are ways for you to continue your career as a real estate investor, without the day to day responsibilities of property management.

Comments Off on What If I Sell My Duplex And Can’t Find A Replacement Property?

Working With a Exchange

Working With a Exchange

I’ve spoken with many longtime Minneapolis and St. Paul duplex owners in recent months who would love to sell and retire from a career in rental property if only they could avoid capital gains tax.

Of course, as seasoned investors, they are aware of  the option of doing what’s known as a 1031 or Starker Exchange, which allows you to reinvest the money into another property without paying taxes. The challenge with this, however, is right now, it’s either difficult to find a good replacement multifamily property or the duplex owners are just tired of managing property.

Believe it or not, there are other solutions.

Duplex sellers don’t have to exchange into other multifamily property. In fact, commercial investment properties, triple net properties, TIC investments, and Delaware Statuatory Trusts are all viable alternatives to owning duplexes.

But what if you don’t want to manage property any longer?

Today, let’s talk about something called a triple net property, which is often identified by the letters NNN. A net leased property is often a retail store or mall. The tenant, or tenants, pay a Central Area Maintenance fee which covers all basic maintenance to the property, insurance and property taxes. Landlords are only responsible for structural repairs, like replacing a roof or HVAC system.

Of course, this results in greatly reduced managerial duties, as the tenants are taking care of most items.

Typical NNN lease tenants include stores like Walgreens, Starbucks and Sprint.

Not owning their stores frees capital for these companies to grow their businesses. In return, solid, stable companies with good credit ratings reduce the risk to NNN investors.

While these properties can be expensive,  the proceeds from the sale of many metro duplexes may be more than enough for the down payment on a property like this.

Next time, we’ll talk about TIC invesments.

Comments Off on What Stops You From Selling Your Minneapolis Duplex?

The dude 3D character x2 climbing Brick wall.

The dude 3D character x2 climbing Brick wall.

What’s the biggest obstacle to selling your Minneapolis duplex?

Tenants.

Having tenants is a good thing. But having tenants who refuse to allow Realtors to show the property because they haven’t been given 24 hour notice is a problem.

Why?

Two reasons.

First, because there is no such law requiring a landlord to give tenants 24 hour notice.

Second, duplex buyers typically want to go see several listings at a time. An opportunity to do that may open on their calendar 23 hours before they want to go. Their Realtor will typically schedule properties to see that are in the same geographic area.

The next time they go look at duplexes for sale, they will likely be looking in another neighborhood.

According to page 17 of the Minnesota Landlord and Tenants Handbook, a landlord may enter a tenant’s unit for “reasonable business purpose” after making a good faith effort to give the tenant reasonable notice.

No where in the handbook are “good faith effort” or “reasonable notice” defined.

What is defined, however, are examples of a reasonable business purpose. They include:

  1. Showing the unit to prospective tenants.
  2. Showing the unit to prospective buyers or an insurance agent.
  3. Performing maintenance work.
  4. Showing the unit to state, county or local officials (such as building inspectors).
  5. Checking on a tenant causing a disturbance within the unit.
  6. Checking on a tenant the landlord believes is violating the lease.
  7. Checking to see if a person is staying in the unit who is not on the lease.
  8. Checking the unit when a tenant moves out.
  9. Performing housekeeping work in a senior housing unit.

When signing a lease with a tenant, or before you put your Minneapolis duplex up for sale, it’s paramount you be clear with the tenant as to what their rights are…and are not.