With nearly 80 million baby boomers approaching the estate planning phase of their wealth cycle, the focus has shifted from wealth accumulation to wealth distribution. If you are an investor that owns rental property or other types of investment real estate, you are likely in a season of life where it’s time to transform highly appreciated and actively managed property into a more secure and reliable form of passive income. Income that can be used to fund health care and housing costs, charitable giving, and future lifestyle expenses.
Planning an Exit Strategy
According to the US Census Bureau, nearly 60 percent of all residential rental property is held by senior investors. Most properties are older, requiring hands-on management and ongoing capital expenditures. Further, the children don’t want the burden of property management or responsibility for selling properties after the parents have passed. Now, facing a crossroad, older property owners desperately need an exit strategy.
Section 1031 of the Internal Revenue Code states that any taxpayer who sells property held for investment purposes or used in an active trade or business can defer taxes provided that sales proceeds are reinvested into one or more qualified replacement properties. While tax deferral is a critical component, it does not solve the bigger issue of eliminating property management. Fortunately, there is a solution that combines 1031 tax deferral with diversified property income and simplified wealth transfer.
Delaware Statutory Trusts
In 2004 the IRS approved a co-ownership structure known as the Delaware Statutory Trust or “DST.” DSTs are pre-structured, cash flowing property interests that allow smaller investors to acquire a fractional interest in larger Class “A” multifamily residential and commercial properties. With low minimum investment requirements, multiple DSTs can be combined to create diversified portfolios with professional third-party management. Sample properties include Class “A” apartments, senior housing, medical and healthcare facilities, industrial properties, self-storage, and U.S. government leased properties. DSTs also offer flexible estate planning strategies for target date liquidity needs and transfer of beneficial ownership to the heirs.
Protect Income and Preserve Assets
As the baby boom generation prepares for the greatest wealth transfer in history, it is critical to preserve assets through strategic tax planning and income protection. A carefully planned portfolio of DST property investments can compound wealth through 1031 tax deferral and generate passive income for living, giving, and legacy estate planning. Senior real estate investors have worked a lifetime for return-on-investment and now it is time to experience “Return-On-Life”!
Brad Watt is the Founder & CEO of Petra Capital Properties. For more information on how to unlock financial freedom and 1031 tax-deferred DST passive property investments, he may be reached at 719-649-7770 or by email at [email protected]. *Distributions are not guaranteed. Securities offered through Saxony Securities, Inc., Member FINRA/SIPC