Investors Nearing Retirement Can Unlock Real Estate Wealth

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Unlocking real estate wealth for investors nearing retirement

Individuals or investors nearing retirement face the challenge of having wealth trapped in investment properties with no real strategy to maintain their wealth and create passive income. These individuals need a plan to ease the steep taxes on capital gains when their investment properties are sold. There’s an estimated $6.5 trillion-plus currently locked in investment property in the U.S.

investment property wealth typically isn’t managed with the same discipline as investments such as stocks, bonds or other traditional asset classes. As they transition from building wealth to harvesting it, individuals run the risk of undermining their plans for the future. We recommend investors nearing retirement work with their CPAs and financial advisors to take a closer look at their options.

One tax-optimized strategy is a 1031 exchange. This transforms individual property investments into diversified portfolios called Delaware statutory trusts, which are tax-deferred.

A Delaware statutory trust is a security. It qualifies as like-kind property for purposes of the Section 1031 exchange requirements. Investors trying to complete a 1031 exchange often face uncertainty surrounding which properties to identify for an exchange, and whether they will close within the statutory timeframe. Choosing to invest in a DST may take the guesswork out of the process. With a DST, the sponsor performs due diligence, purchases the property, and arranges financing, allowing the investor to transition from the sale of their property into the DST.”

A typical investor might have family property with a low-cost basis, or family members that co-own the property may decide to sell and go their separate ways. The immediate tax consequence of an outright sale would be very bad. Individuals need a long-term plan because real estate is not something that you can move in and out of. The tax benefits of real estate ownership continue with ownership in a DST. A 1031 exchange using a DST can provide a solution to seek steady income while deferring a taxable event.