Poll: Do you invest in real estate?

[TheDangerZone]

Count me in the zero real estate holdings at this time.

Recently read the Physician on Fire Post on AcreTrader, a syndicated farmland investing platform. His first investment was about a year ago. I am tempted.

The biggest barriers to my personal RE involvement are time and perceived risk (difficult for me to confidently invest without any significant understanding of what makes for a good RE investment). Syndicated real estate offers to overcome those, with AcreTrader specifically doing so with a low volatility asset class (farmland). Thinking it could be a good way to dip my toes in the water.

https://www.physicianonfire.com/acretrader-review/

[White.Beard.Doc]

I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?

Triple net leases are easy on the landlord, minimal work. Generally with a triple net lease, a known solid business entity leases your property and they pay taxes, insurance and maintenance. They basically care for the property while you simply collect rent. Triple net leases typically involve only commercial properties.

Personally, I invested in residential properties because it was much easier for me to understand the balance of forces in the market and to make good judgments on what to buy and what would rent well. I was concerned that the commercial market was not in my wheelhouse and I would be more likely to misjudge pricing and demand. I also know that in good locations with a reasonable economy, there is always demand for residential rentals. If you have the knowledge to buy smart, then triple net lease properties would be easier to manage than residential properties. In these times, the risk seems likely higher, but residential properties are also higher risk at this moment. I am fortunate because I own residential properties that are for upper middle class families seeking good schools, and in this Covid situation, the knowledge workers seem to be doing just fine working from home.

[dennis]

I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?

1031 works the same for multifamily, retail, office or any other type of "commercial" property.

[HikingDO]

So 55% of people don’t like pizza? Wow, what kind of crazy person doesn’t like pizza???

[IJ]

I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.

I am thinking about a 1031 exchange as well. What do you think about a triple net lease? Avoids the tax hit and minimizes "work". Does anyone have experience with a 1031 exchange for a commercial property?

[StarTrekDoc]

A good option for you to consider may be to 1031 into something much more passive and secure. If you could find a quality single tenant net lease property to roll into, you could shelter most of the income via depreciation, and they're literally about as passive as it gets.

Or beach property for the next gen and AirBNB it with management company. Gives a higher chance of staying in the family and usage with a set and forget and vacation legacy.

[dennis]

I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.

It is difficult for some to turn over management to a 3rd party company but I've never had a problem with doing that and it certainly simplifies your life. Turning it over to heirs may work if they truly have the interest in real estate. I would consider a reverse 1031 so you can continue the depreciation and that will also allow you to step up to a larger property and then turn it over to a management company to simplify. You would also have a bigger legacy for the next generation if you are so inclined.

[CREGuy]

I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.

A good option for you to consider may be to 1031 into something much more passive and secure. If you could find a quality single tenant net lease property to roll into, you could shelter most of the income via depreciation, and they're literally about as passive as it gets.

[Tim]

All good strategies. Gut feel is the wealth inequality issue in combination with the debt will lead to changes in tax policies in the next 10-20 years. Passive income, step up in basis, 1031’s, LTCG etc. are the low hanging fruit. $400k seems to be the political flavor of the hurdle income rate. Changing earned income inequalities would be much more politically difficult. One could guess that something will change, but the path isn’t really clear. Passive sounds like it doesn’t hurt anyone, appealing. Nothing actionable, just diversify.

[Larry Ragman]

I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.

Congratulations. I like the idea of asking the kids/heirs to step up in your scenario. On a more modest level, my wife and I bought and sold a number of properties through the years and retained two as long term rentals. Both now paid off and one fully depreciated. We have also considered your plan if we move out of the area or when my wife doesn’t want to do it anymore. I also consider two other approaches.

One of my planned strategies is to accumulate enough capital losses through TLH to offset the gains of selling one of the properties. I may 1031 the other into a rental that I eventually convert to our retirement home. Of course, that may not work on your scale.

The other strategy I am considering (with the properties now paid off and generating income I don’t need yet) is to refinance and take out cash. Use the money for whatever - perhaps park it and take a draw for retirement income in a few years. But the key thing is that transaction is income tax free, the income is now offset by the mortgage Interest payments, and the properties keep appreciating for the heirs.

[RocDoc]

I do own a share of a large and very profitable family farm in Canada, but I don’t count it as an actual investment. It’s a beloved working farm that has been in the family for generations. I don’t plan to ever sell the land. And I use most of the profits, to buy up more family farm land with my siblings and cousins to increase our family holdings. My husband and I don’t have kids, so I plan to leave my all shares to my nieces and nephews. But I get great fringe benefits of epic parties, travel adventures, wonderful family get togethers and precious memories with my fellow investors.

[Yowza]

I only invest in pizza parlor REITs

[White.Beard.Doc]

I invested in residential real estate over the course of my career. My first investment real estate purchase was when I was a senior resident. The real estate has contributed millions of dollars to my net worth, but on the negative side it was a bit of a side job. I would say that over a few decades I averaged only 1 or 2 hours a month on real estate, so I am fortunate that I did well without too much work.

On the positive side, I now have the benefit of a six figure passive annual income from real estate. And rental income represents an excellent inflation hedge in retirement.

On the negative side, I am running out of depreciation deductions to shield the rental income from income taxes. The solution to that that problem would be to sell via 1031 exchange to ever larger multifamily properties, but just how much does one want to own when already having enough to meet all financial needs? And a primary goal at this stage of life is to simplify things, so if it weren’t for the massive tax bill that would result, I would cash out of the real estate. The best solution to the tax problem is to simply hold on and then pass the real estate to the heirs at a stepped up basis after death, so perhaps we will ask the heirs to step up and oversee the management of the real estate in the coming years.

[Lordosis]

I am glad I am in the majority for the liking of pizza but I am surprised that there are so few who do not invest in RE

[childay]

I like pizza but thought you could only pick one answer

I have clarified that. Hopefully everyone likes pizza that would be unfortunate