Tldr: have $2m in equity across 5 small multi-family, tired of daily management, want to scale up and be more passive, don't want to pay massive capital gains tax
Hi everyone,
I've read many posts of similar experiences but want to add my own to get specific advice. I currently own five 3 unit multi-family properties that I've had for about 8 years and have acquired significant equity (~$2M) from value add and an upward market. My cashflow is about 100k so not bad but still only 5% ROE.
I'm pretty burned out from being the landlord because all the properties are pretty old (100+ years) so small things are constantly breaking. I do a mix of DIY and outside contractors to do maintenance to try to keep expenses low. I tried going the property management route for about 6 months a few years back and it was a disaster. The tenants were unhappy, I had tenants move out because of the lack of responsiveness which then cost a ton to turnover. I'm just not a big believer 3rd party management can effectively manage a ton of small old properties well and still have worthwhile cashflow for the LL.
I'm at a transition point where children are going to become a consideration and I can't be running to a property in the middle of the night because a pipe is leaking. This is all to say, I want out but I don't know how to do it without being an active manager or paying major capital gains taxes (nearly 500k in my case).
I've considered many options 1031 into NNN property, scale up to a large multi-family with manager, DST into syndication. Deals these days are so hard to come by the risk seems very high compared to years past. Anyone have any suggestions or similar experience to help guide my next phase? I'm in the Northeast so I'd prefer to stay somewhat local but obviously that comes at a cost so I'd be open to looking long distance.
Advice needed on transitioning out of LL
byu/nomisschris inrealestateinvesting
Posted by nomisschris
2 Comments
From the aviation side, I can relate to wanting systems that run without constant hands-on maintenance – old birds require way more attention than newer equipment
Have you looked into medical office buildings or self-storage for your 1031? They tend to be lower maintenance than residential and you can still find decent deals if you’re willing to go a few hours out from major metros. The cap rates might not be as exciting but the headache factor drops dramatically
Without seeing your tax returns you will be taxed long term capital gains 0%,15%, or 20% depending on income minus your cost basis after depreciation. Have you been making capital improvements that will raise your cost basis or have you been writing them off every year?
Talk with an accountant about the pros and cons. I have seen people pay way more than they should have on a 1031 exchange just to avoid paying what would have been maybe $100k in taxes.