For many long-time real estate investors, one of the biggest challenges is deciding when it’s the right time to reposition an asset. That was exactly the situation the Lacey family found themselves in.
The Laceys had owned a multifamily property for many years. The investment had performed well and generated steady income, but over time, the property had become fully depreciated. While it had been a successful long-term hold, the family began to face the typical challenges that come with older real estate – ongoing maintenance, tenant management, and the constant responsibility of dealing with repairs, vacancies, and operational issues.
Our team had been monitoring activity in the area and believed their property would attract strong interest in the current market. Rather than waiting for the family to consider selling, we approached them with an unsolicited offer from a qualified buyer who was actively seeking opportunities in the neighborhood.
Considering the Transition Options
When we presented the opportunity, the Lacey family wasn’t initially planning to sell. However, the strength of the offer opened the door to a broader conversation about their long-term investment goals.
Together, we reviewed several options:
- Continuing to hold and operate the property
- Selling and paying capital gains taxes
- Repositioning the equity through a 1031 exchange
After reviewing the numbers and potential tax impact, it became clear that a 1031 exchange could allow the family to preserve their equity while transitioning into a more passive investment.
We helped guide them through the sale process and coordinated the timeline to ensure the transaction qualified for a tax-deferred exchange. The next step was identifying a replacement property that aligned with their goals.
The Triple-Net Exchange Option Benefits
After evaluating several possibilities, the Lacey family ultimately chose to exchange into a single-tenant net-lease (NNN) restaurant property located out of state.
This structure provided several key advantages:
- Passive income with minimal day-to-day involvement
- Long-term corporate lease providing predictable cash flow
- Tenant responsible for property expenses, including maintenance, taxes, and insurance
- Diversification into a different market
In short, the family transitioned from actively managing a multifamily property to collecting what many investors refer to as “mailbox money.” No more late-night repair calls, tenant turnover, or unexpected capital expenses.
Another major benefit of the exchange was the ability to reset the depreciation basis on the new property. Because the replacement asset was acquired at today’s market value, the Laceys were able to begin depreciating the new investment, creating additional tax advantages moving forward.
Today, the Lacey family enjoys stable income from their net-lease investment while avoiding the operational headaches that can come with older multifamily properties.
Path to Achieving Long-Term Goals
Their story highlights an important point for many real estate owners: sometimes the best opportunities are the ones you weren’t initially looking for. With the right timing, guidance, and strategy, it’s possible to unlock equity, defer taxes, and reposition into investments that better align with your long-term goals.
At Starker West, we frequently help property owners evaluate opportunities like this – whether it involves sourcing off-market offers, analyzing tax strategies, or facilitating 1031 exchanges designed to simplify ownership and maximize long-term wealth.
Seth Watje & Adam Cairo are Principals at Starker West Inc. – an independent, full-service commercial real estate brokerage firm that specializes in the representation of clients in the acquisition and disposition of multifamily assets throughout San Diego County.
For more information, contact them at: [email protected] / [email protected]
619-358-3748 | 619-300-0173. Visit their website at www.starkerwest.com.