Commercial Building Owned by 85 year old dad

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J295
Posts: 2144
Joined: Sun Jan 01, 2012 11:40 pm

Commercial Building Owned by 85 year old dad

Post by J295 » Thu Mar 21, 2019 6:56 am

Dad and a business partner have owned a commercial building for about 40 years. Great leases, low maintenance, and nice cash flow (no debt). If they were to sell the federal and state taxes would be around 30%. Of course, a sale after his death would be essential no taxes due to step up in basis.

Dad has enjoyed managing the building (hardly any work, but he enjoys problem solving with tenants, city, etc.), but now due to health issues with he and mom he'd consider getting out of the ownership -- except the taxes rightly give him pause.

Options other than selling and paying the taxes that he might consider, in addition to the following?
Hire a manager to operate the property with a plan to sell after death


Are there other real estate sites that deal with this type of issue.

Notes:
Owned in and LLC and it seems that a like-kind exchange won't provide a solution (many of you probably know you can't 1031 like-kind into a REIT).
Accountant and tax lawyer don't have any great suggestions yet.

My wife and I are 59 and retired. We could manage it or work with a manager but really don't want to for a variety of reasons. We are fine financially with or without the building (as are mom and dad).

A bit more complicated due to a partner in the ownership, but ignoring that for purposes on getting input on minimizing taxes.

Thanks in advance for any insights.

riverguy
Posts: 496
Joined: Sun May 23, 2010 10:33 pm

Re: Commercial Building Owned by 85 year old dad

Post by riverguy » Thu Mar 21, 2019 7:44 am

1031 into something else. Why do you want a REIT? Lots of other options. Just would need to title the replacement property in the name of the LLC.

Jmh04j
Posts: 102
Joined: Thu Aug 17, 2017 4:40 pm

Re: Commercial Building Owned by 85 year old dad

Post by Jmh04j » Thu Mar 21, 2019 8:16 am

J295 wrote:
Thu Mar 21, 2019 6:56 am
Dad and a business partner have owned a commercial building for about 40 years. Great leases, low maintenance, and nice cash flow (no debt). If they were to sell the federal and state taxes would be around 30%. Of course, a sale after his death would be essential no taxes due to step up in basis.

Dad has enjoyed managing the building (hardly any work, but he enjoys problem solving with tenants, city, etc.), but now due to health issues with he and mom he'd consider getting out of the ownership -- except the taxes rightly give him pause.

Options other than selling and paying the taxes that he might consider, in addition to the following?
Hire a manager to operate the property with a plan to sell after death


Are there other real estate sites that deal with this type of issue.

Notes:
Owned in and LLC and it seems that a like-kind exchange won't provide a solution (many of you probably know you can't 1031 like-kind into a REIT).
Accountant and tax lawyer don't have any great suggestions yet.

My wife and I are 59 and retired. We could manage it or work with a manager but really don't want to for a variety of reasons. We are fine financially with or without the building (as are mom and dad).

A bit more complicated due to a partner in the ownership, but ignoring that for purposes on getting input on minimizing taxes.

Thanks in advance for any insights.
You could consider a 1031 exchange into a Single Tenant Lease property. These are structured as an absolute NNN leases with all expenses etc. are covered by the tenant which ultimately results in "mailbox money." There are thousands of options to choose from from many well known tenants including, large banks, drug stores, retailers etc. etc. A few tips:

- Remember you are buying real estate so stay away from tertiary locations. Remember businesses come and go so be sure to pick a location that has a chance of replacing the rental rate the original tenant is paying and people want to be.

- Select an investment grade tenant. Often times real estate brokers say "credit tenant" when they are not actually rated investment grade by Moody's and S&P.

- Think about the industry you are investing in. Will it be here 25 years from now?

Outside of a 1031 exchange into a new low maintenance STNL deal you could consider a refinance. This would allow you to pull some cash out . Look for a life insurance company that will consider a lower leverage fully amortizing loan (15-20 years) so you don't have any balloon payment. Often times these are non-recourse loans. There are many property management companies that could do a good job for a moderate fee of 3-5% of Effective Gross Income.

I am in the CRE finance industry and happy to provide more insight directly if you wish. I am not trolling for new business just trying to be helpful...

Best of luck!

- Jim

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