“Don’t let anyone who hasn’t walked in your shoes tell you how to tie your laces.” Anonymous

When you sell your building one of the most important considerations is What do I do with the profit? Typically, investors look at a 1031 exchange or an installment sale to reduce the tax. Many investors are doing a Delaware Statutory Trust, which is a group investment usually going 5 to 10 years while giving you a modest monthly return on your principal, which is usually around 5%.There is another investment vehicle which has been around for over 20 years called a Deferred Sales Trust. There are clearly pros and cons, but it may be something to look at as you sell your investment property.

WHAT IS A DEFERRED SALES TRUST? Deferred Sales Trust is a legally binding agreement between you and a third party trust company which acts as your trustee. You would be selling your property, such as your multi family building, and in return you will get a promissory note or installment payments, depending on your agreement. The trust can make investments or distribute cash according to your needs.

WHAT IS THE DIFFERENCE BETWEEN A DEFERRED SALES TRUST AND A 1031 EXCHANGE? In a word, flexibility. Unlike a 1031 Exchange, the trust can purchase stocks, bonds and investments other than real estate. There is a 45 day identification period and there is no 180 day requirement to close the new property. You can time disbursements according to your schedule and interest from sales proceeds can potentially be distributed tax free. You can have an indefinite deferral of you capital gains.

WHAT ARE THE CONS? I recently had a client close on a deferred sales trust and it was the first one I have been involved with, so they are not terribly common in my experience. The process involved a complex legal structure. The costs of setting up the trust can be high and would reduce your profits. Additionally, investing in stocks, mutual funds and bonds could expose you to market risk that you may not experience with your real estate investments.

WHAT TO DO? If you are thinking of selling, this is the time to consult with you CPA and your real estate attorney. Maybe talk to a couple of firms that are offering these trusts and talk to clients who have used this vehicle. Read up on the opportunity yourself and take your time before making a decision. Making no decision leaves you as you are, but a bad decision can affect your future and that of your family. I think of this as another tool to consider. It may be a good choice for you or not, but spend some time with the experts you have trusted to help you decide before moving forward.

“All of life is peaks and valleys. Don’t let the peaks get too high and the valleys too low.” John Wooden

What we at PRS PROPERTIES CAN DO. We can give you a good idea of the current value of your building. We can suggest changes you might want to make before sale to give you an idea what type of building you would be able to exchange into. You may decide to stay in the rental business or you may want to move into a more passive real estate investment, such as a triple net or a DSL.. We are always available to chat. We can give you referrals for professionals, such as lenders, contractors, and engineers, so that you can decide who you feel best with. We can supply you with rent and sale comparable in the area of your properties, so that you know what rental values are in your area. It is important that you know the true value of your rental units, so that you can get them rented right away at market value, or at least as much as possible with rent control restrictions. We can look at potential purchases that you may be interested in to make the property more desirable, and maybe look at potential issues that an insurer might require you to repair.

If you should decide to sell your building, we can help you exchange into a larger or smaller properties. We can even help you move into something with less management responsibilities. We can also help with getting the paperwork together for a refinance if that is your desire. We can also recommend experienced licensed contractors who can perform any repairs or installations you may need prior to selling. We can also look at your building for other easy and inexpensive changes that might allow you to get a higher value. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We are currently looking for “as-is” properties and are willing to purchase with low rents, deferred maintenance or even with a problem tenant in place. We can offer a 7 day escrow and all cash at closing. Give us a call. We have also put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are currently in 1031 exchanges and need to identify a replacement property before their 45 day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

We look forward to a prosperous 2025 and we look forward to be of any help we can to buyers and sellers of multi unit properties.