Real Estate

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Real Estate

Post by AnnetteLouisan »

What suggestions do you have for someone with no real estate experience, inclination or ability potentially inheriting a middle market residential real estate portfolio of apartments and small single family homes in trendy, continually appreciating urban and suburban New York neighborhoods, respectively of approx 12 million? Keep, sell, use a property manager or two?
Last edited by AnnetteLouisan on Wed Sep 22, 2021 6:44 pm, edited 1 time in total.
alex_686
Posts: 13286
Joined: Mon Feb 09, 2015 1:39 pm

Re: Real Estate

Post by alex_686 »

Sell.

We can debate the virtues and dangers of real estate. However if the owner has no "inclination" then that is a big flag that they should sell. Even with a property manager the owner will have to make decisions and choices.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

alex_686 wrote: Tue Sep 21, 2021 9:06 am Sell.

We can debate the virtues and dangers of real estate. However if the owner has no "inclination" then that is a big flag that they should sell. Even with a property manager the owner will have to make decisions and choices.
Thanks. That makes sense.
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Real Estate

Post by dbr »

I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
User avatar
Lee_WSP
Posts: 10346
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Real Estate

Post by Lee_WSP »

Do you wish for the beneficiary to have effective control over their inheritance? Just the income stream? Do you care if it is squandered? Some control?

12 million worth of real estate requires a lot of experience to manage properly. If you haven't started yet, you should start educating them now. You should even be educating the next generation.

The alternative is to create a business or trust and hire professional managers and your family can live off the proceeds. They won't take the salary portion, but the return to investors should be pretty adequate. More so if the real estate is levered in any way (indebted).
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

dbr wrote: Tue Sep 21, 2021 10:15 am I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

Lee_WSP wrote: Tue Sep 21, 2021 11:08 am Do you wish for the beneficiary to have effective control over their inheritance? Just the income stream? Do you care if it is squandered? Some control?

12 million worth of real estate requires a lot of experience to manage properly. If you haven't started yet, you should start educating them now. You should even be educating the next generation.

The alternative is to create a business or trust and hire professional managers and your family can live off the proceeds. They won't take the salary portion, but the return to investors should be pretty adequate. More so if the real estate is levered in any way (indebted).
I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
bsteiner
Posts: 9151
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Real Estate

Post by bsteiner »

AnnetteLouisan wrote: Tue Sep 21, 2021 12:00 pm
dbr wrote: Tue Sep 21, 2021 10:15 am I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
Have the person leave it to you in a trust that you control rather than outright to keep it out of your estate for estate tax purposes.
User avatar
Lee_WSP
Posts: 10346
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Real Estate

Post by Lee_WSP »

AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm
Lee_WSP wrote: Tue Sep 21, 2021 11:08 am Do you wish for the beneficiary to have effective control over their inheritance? Just the income stream? Do you care if it is squandered? Some control?

12 million worth of real estate requires a lot of experience to manage properly. If you haven't started yet, you should start educating them now. You should even be educating the next generation.

The alternative is to create a business or trust and hire professional managers and your family can live off the proceeds. They won't take the salary portion, but the return to investors should be pretty adequate. More so if the real estate is levered in any way (indebted).
I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
See Bruce's comment above.

How much influence do you have over the decision exactly? What do your Co beneficiaries desire?

It could just be left in a pot trust and the trustee will manage it all for you all. Not my first recommendation, but it will keep everything together.
mrsgoldilocks
Posts: 60
Joined: Mon Jun 07, 2021 9:15 pm

Re: Real Estate

Post by mrsgoldilocks »

Speaking from my experience of self-managing a few SFHs, there are a lot to learn in real estate management, i.e. the aptitude of the county/state towards rentals (some can be super hostile and picky), finding the right property managers and tenants (can be hit or miss). When investing in real estate, you need to remember, it involves a lot of costs i.e. repair/maintenance. and those costs are going skyrocketing these days. You're also bearing more risks, i.e. non-paying tenant (it's not that easy to evict tenants. in a lot of states, it takes 3 months to successfully evict a tenant even in non-covid time), tenant trashing your place, liabilities, tax, insurance, commission to find tenant etc etc. Also, real estate is not a liquid asset. If you're thinking you can go to court to claim your loss from bad tenant who trash your place or a tenant who owes you 6 months of rent, good luck. most of the time, it's not worth the money and effort.

Yet, all in all speaking, if you have $120M and you want to allocate 10% of it to real estate as a diversification, it's not a bad move. But if you are putting 90% of your net worth into real estate, I would not do that if I were you.
AnnetteLouisan wrote: Tue Sep 21, 2021 9:03 am What suggestions do you have for someone with no real estate experience, inclination or ability potentially inheriting a middle market residential real estate portfolio of approx 12 million in rising markets? Keep, sell, use a property manager or two?
Dave55
Posts: 2016
Joined: Tue Sep 03, 2013 2:51 pm

Re: Real Estate

Post by Dave55 »

AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm
Lee_WSP wrote: Tue Sep 21, 2021 11:08 am Do you wish for the beneficiary to have effective control over their inheritance? Just the income stream? Do you care if it is squandered? Some control?

12 million worth of real estate requires a lot of experience to manage properly. If you haven't started yet, you should start educating them now. You should even be educating the next generation.

The alternative is to create a business or trust and hire professional managers and your family can live off the proceeds. They won't take the salary portion, but the return to investors should be pretty adequate. More so if the real estate is levered in any way (indebted).
I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
Have you tried googling RE Managers in your local area? There are many out there unless you/the portfolio of houses are in a very rural area.....

Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
BillWalters
Posts: 339
Joined: Sun Aug 11, 2019 5:21 pm

Re: Real Estate

Post by BillWalters »

Are you sure there is zero leverage? That would be very unusual. Depending on a ton of factors I’d probably apply low to moderate leverage and try to grow, but that assumes a lot of knowledge you probably don’t have.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

BillWalters wrote: Tue Sep 21, 2021 12:50 pm Are you sure there is zero leverage? That would be very unusual. Depending on a ton of factors I’d probably apply low to moderate leverage and try to grow, but that assumes a lot of knowledge you probably don’t have.
Zero leverage. I‘m sure. It’s a dumb luck story where values went up. Parents are depression era, very frugal and don’t believe in debt.

How do you mean grow - buy more real estate?
Last edited by AnnetteLouisan on Tue Sep 21, 2021 8:10 pm, edited 1 time in total.
GetSmarter
Posts: 236
Joined: Tue Oct 02, 2018 11:49 pm

Re: Real Estate

Post by GetSmarter »

If you will inherit real estate to share as a beneficiary with siblings or whomever else as a beneficiary, I'd run fast, sell everything, enjoy life. Too many unforeseen problems can arise if you're sharing the "gift". If you're inheriting on your own, and you're not into real estate, that's a lot of potential money you can reinvest, share with loved ones, enjoy life while you still can.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

GetSmarter wrote: Tue Sep 21, 2021 1:06 pm If you will inherit real estate to share as a beneficiary with siblings or whomever else as a beneficiary, I'd run fast, sell everything, enjoy life. Too many unforeseen problems can arise if you're sharing the "gift". If you're inheriting on your own, and you're not into real estate, that's a lot of potential money you can reinvest, share with loved ones, enjoy life while you still can.
it‘s separated for the most part by beneficiary. Only one shared place. But I agree with your point, certainly wouldn’t choose RE management as a way to spend my time. Although there are worse problems.
Spencer
Posts: 172
Joined: Wed Mar 19, 2014 10:20 am

Re: Real Estate

Post by Spencer »

I have dealt with similar situations extensively, and the answer is rarely as simple as some posters make it. There are a ton of dynamics between the family, taxes, estate plan, etc. Can you expand on what the "middle market RE portfolio" looks like? Is this a bunch of single family rentals in a specific market? Apartment buildings? How are the assets currently managed?

How many co-beneficiaries are there? What is the general consensus from the group regarding what to do?
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

bsteiner wrote: Tue Sep 21, 2021 12:07 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:00 pm
dbr wrote: Tue Sep 21, 2021 10:15 am I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
Have the person leave it to you in a trust that you control rather than outright to keep it out of your estate for estate tax purposes.
Thank you! If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax? sigh...
User avatar
Lee_WSP
Posts: 10346
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Real Estate

Post by Lee_WSP »

AnnetteLouisan wrote: Tue Sep 21, 2021 5:58 pm
bsteiner wrote: Tue Sep 21, 2021 12:07 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:00 pm
dbr wrote: Tue Sep 21, 2021 10:15 am I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
Have the person leave it to you in a trust that you control rather than outright to keep it out of your estate for estate tax purposes.
Thank you! If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax? sigh...
He needs to leave it to you *in trust* (either testamentary or via a living revocable trust which turns into an irrevocable trust upon death) instead of outright (the normal way).

The assets are included in your estate if you received title to them during your life and then placed them into trust yourself. The decedent needs to place the assets into trust where it can then skip over you to the next generation and possibly further. There's a few more requirements, but that is the short version.
bsteiner
Posts: 9151
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Real Estate

Post by bsteiner »

Lee_WSP wrote: Tue Sep 21, 2021 12:13 pm ...
It could just be left in a pot trust and the trustee will manage it all for you all. Not my first recommendation, but it will keep everything together.
I think those are mainly used in Colorado.

Occasionally someone who's paid for the college education of his/her older children but not the younger children provides for the children in a single trust until all of the children have reached a specified age, so as to even up the younger children. However, it's difficult to have such a trust beyond that point.
AnnetteLouisan wrote: Tue Sep 21, 2021 5:58 pm ... If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax?
What is an irrevocable living trust?

The easiest thing would be for the current owner to (in his/her Will) leave it to his/her beneficiaries in separate trusts.

If you can't get him/her to sign such a Will, you could create a trust to receive the inheritance, and then the person could leave your share to that trust. We occasionally do that when the current owner would be willing to leave the inheritance to such a trust but wouldn't be willing to pay the legal fees to include such a trust in his/her Will, or if the current owner's lawyer isn't able to do it and he/she isn't willing to go to a lawyer who is.

If he/she were to put the assets into a trust now, whether that would be a taxable gift and whether it would be included in his/her estate would depend on the terms of the trust.

Depending on the size of his/her estate, he/she may want to make some gifts of high basis assets now to take advantage of the $11.7 million estate and gift tax exclusion amount since it's scheduled to revert to $5,850,000 (indexed) in 2026.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

bsteiner wrote: Tue Sep 21, 2021 6:50 pm
Lee_WSP wrote: Tue Sep 21, 2021 12:13 pm ...
It could just be left in a pot trust and the trustee will manage it all for you all. Not my first recommendation, but it will keep everything together.
I think those are mainly used in Colorado.

Occasionally someone who's paid for the college education of his/her older children but not the younger children provides for the children in a single trust until all of the children have reached a specified age, so as to even up the younger children. However, it's difficult to have such a trust beyond that point.
AnnetteLouisan wrote: Tue Sep 21, 2021 5:58 pm ... If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax?
What is an irrevocable living trust?

The easiest thing would be for the current owner to (in his/her Will) leave it to his/her beneficiaries in separate trusts.

If you can't get him/her to sign such a Will, you could create a trust to receive the inheritance, and then the person could leave your share to that trust. We occasionally do that when the current owner would be willing to leave the inheritance to such a trust but wouldn't be willing to pay the legal fees to include such a trust in his/her Will, or if the current owner's lawyer isn't able to do it and he/she isn't willing to go to a lawyer who is.

If he/she were to put the assets into a trust now, whether that would be a taxable gift and whether it would be included in his/her estate would depend on the terms of the trust.

Depending on the size of his/her estate, he/she may want to make some gifts of high basis assets now to take advantage of the $11.7 million estate and gift tax exclusion amount since it's scheduled to revert to $5,850,000 (indexed) in 2026.
Thank you. I meant revocable living trust. Basis is extremely, extremely low. All those options you mention sound perfect.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

Spencer wrote: Tue Sep 21, 2021 1:20 pm I have dealt with similar situations extensively, and the answer is rarely as simple as some posters make it. There are a ton of dynamics between the family, taxes, estate plan, etc. Can you expand on what the "middle market RE portfolio" looks like? Is this a bunch of single family rentals in a specific market? Apartment buildings? How are the assets currently managed?

How many co-beneficiaries are there? What is the general consensus from the group regarding what to do?
I DMed you the details, thank you.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

Lee_WSP wrote: Tue Sep 21, 2021 6:35 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 5:58 pm
bsteiner wrote: Tue Sep 21, 2021 12:07 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:00 pm
dbr wrote: Tue Sep 21, 2021 10:15 am I agree, sell.

Also, presumably the basis is stepped up now, depending on exactly how the property was passed on.
Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
Have the person leave it to you in a trust that you control rather than outright to keep it out of your estate for estate tax purposes.
Thank you! If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax? sigh...
He needs to leave it to you *in trust* (either testamentary or via a living revocable trust which turns into an irrevocable trust upon death) instead of outright (the normal way).

The assets are included in your estate if you received title to them during your life and then placed them into trust yourself. The decedent needs to place the assets into trust where it can then skip over you to the next generation and possibly further. There's a few more requirements, but that is the short version.
There‘s no next generation in the immediate family, unfortunately.
DesertGator
Posts: 269
Joined: Thu Jun 21, 2018 11:12 pm

Re: Real Estate

Post by DesertGator »

SELL- as quickly as possible. Recent events have revealed that being a residential landlord is now a terrible idea. I am a BIG fan of real estate and have a family of brokers, agents and appraisers. But residential rental real estate is in my opinion no longer a valid business model.
User avatar
Sandtrap
Posts: 19582
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Real Estate

Post by Sandtrap »

I have experience with what can happen with family owned and/ extended family and/or relatives families, with Residential income property estates from 10 to over 50 mil. In value.
Also, business structure aspects, etc.

The situation can be complex and decisions include the business aspects, family dynamics, estate structure, etc, etc.

So as to save space on your thread and also not worry about forum discussion rules and guidelines and sensitivity regarding businesses, etc.and to avoid thread lock….
PM me as you wish.

Aloha
J🌺
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

DesertGator wrote: Tue Sep 21, 2021 7:31 pm SELL- as quickly as possible. Recent events have revealed that being a residential landlord is now a terrible idea. I am a BIG fan of real estate and have a family of brokers, agents and appraisers. But residential rental real estate is in my opinion no longer a valid business model.
We experienced that quite recently and it is certainly a change of atmosphere. Thank goodness I read all those books about the Great Depression (and WW2, and various other systems), or I’d think the attitudes toward landlords were entirely new.
bltn
Posts: 1843
Joined: Mon Feb 20, 2017 8:32 pm

Re: Real Estate

Post by bltn »

I would sell. Now. Rarely have we had as good a market for liquidating residential real restate as we ve had in the last couple of years.
I d sell my holdings ASAP.
tibbitts
Posts: 23589
Joined: Tue Feb 27, 2007 5:50 pm

Re: Real Estate

Post by tibbitts »

AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
Who is "we?" Maybe it's embedded in the thread somewhere and I missed it, but any more than one person makes not selling immediately even more of a potential disaster.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

tibbitts wrote: Tue Sep 21, 2021 9:44 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
Who is "we?" Maybe it's embedded in the thread somewhere and I missed it, but any more than one person makes not selling immediately even more of a potential disaster.
A sibling and I.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

bltn wrote: Tue Sep 21, 2021 9:41 pm I would sell. Now. Rarely have we had as good a market for liquidating residential real restate as we ve had in the last couple of years.
I d sell my holdings ASAP.
Very good point - it hasn’t been this much of a seller’s market since 2006/07, would you say?
tibbitts
Posts: 23589
Joined: Tue Feb 27, 2007 5:50 pm

Re: Real Estate

Post by tibbitts »

AnnetteLouisan wrote: Tue Sep 21, 2021 9:45 pm
tibbitts wrote: Tue Sep 21, 2021 9:44 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
Who is "we?" Maybe it's embedded in the thread somewhere and I missed it, but any more than one person makes not selling immediately even more of a potential disaster.
A sibling and I.
Maybe the sibling wants to buy your share?
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

DesertGator wrote: Tue Sep 21, 2021 7:31 pm SELL- as quickly as possible. Recent events have revealed that being a residential landlord is now a terrible idea. I am a BIG fan of real estate and have a family of brokers, agents and appraisers. But residential rental real estate is in my opinion no longer a valid business model.
Rents just jumped by a lot in our area. I find real estate unpredictable. But it allowed my parents to have a comfortable life after a hard start for both of them in the 1930s.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

tibbitts wrote: Tue Sep 21, 2021 9:53 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 9:45 pm
tibbitts wrote: Tue Sep 21, 2021 9:44 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:06 pm I‘m one of the beneficiaries. Parents, who are divorced, think we can manage it, but it genuinely isn’t the case. No one wants it squandered. None of it is leveraged. Where can we find professional managers?
Who is "we?" Maybe it's embedded in the thread somewhere and I missed it, but any more than one person makes not selling immediately even more of a potential disaster.
A sibling and I.
Maybe the sibling wants to buy your share?
It’s divided by parcels rather than shares in the estate plans, so exiting wouldn’t be too bad and I wouldn’t have to rely on the sibling to buy me out, fortunately.
J295
Posts: 3399
Joined: Sun Jan 01, 2012 10:40 pm

Re: Real Estate

Post by J295 »

AnnetteLouisan wrote: Tue Sep 21, 2021 9:03 am What suggestions do you have for someone with no real estate experience, inclination or ability ….
Sell
DarkHelmetII
Posts: 1436
Joined: Mon Jul 24, 2017 12:25 pm

Re: Real Estate

Post by DarkHelmetII »

Not knowing all of the details - most definitely sell. Too much headache, uncertainty, OP admittedly doesn't have the interest or expertise.
User avatar
Sandtrap
Posts: 19582
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Real Estate

Post by Sandtrap »

Some random considerations:

First: a dislaimer: These types of financial situations are complex and attempting actionably applicable suggestions specific to you can be dicey at best given only the above data and also potentially subjective based on experience, opinion, etc.

However, based on what you present and many similarities, here are some random things to consider.

Aloha

Some random notes:
1
Your situation is not much different than a business person selling off 10 apartment buildings, or a personal business, and in some ways a "windfall", to retire and having no pension or 401k retirement and all that. So, the idea is to first establish a broad and long term comprehensive financial portfolio structure that meets financial goals and needs, short and long term.
2
The variables are that this investment portfolio does not have to encompass 100% of one's assets/money. It can, for example, represent 50% of one's income assets.
So, for example, at the very basic level, in an index fund investing portfolio, a single balanced (all in one fund) such as the Vanguard Balanced Index Fund, in a brokerage account at Vanguard (establish brokerage accounts at a brokerage that has the family of house funds one wants because they are there with no transaction fees, etc, vs having Vanguard Funds in a Schwab account. See?
So, for example, 1 million in the brokerage investment portfolio at the Vanguard Brokerage, and then 1 million in sole ownership physically held R/E residential income property.
3
The above is one way to diversify an income stream and how assets (money and things) are held.
It's not a matter of whether one likes or doesn't like a single condo rental as many on the forum might have experience with or input (they don't have your level of holdings or experience so their input can be very subjective so caution there).
So, anyway, there has to be a decision there if one wants to diversify this way. It requires attention to the R/E income property as a "business". You are "hiring" a property management company, or leasing agent, etc, and still "have to have transparency, oversight, and accountablity, and monthly reporting and monitoring on your part. It is not 100% passive and hands off, mind off, as many think. That's how property mgt companies skim customers that don't want to think about what they own. But, that's not all negative. It can be done well, but has to be done properly and with vigilance.
So, think that if you retain some of the rental properties and also sell some and invest that in a investment portfolio, like a 3 legged retirement portfolio "stool". 1 leg is the income properties, 1 leg is the income from the market index fund based investement portfolio, and the 3rd leg is from SS, pension, etc, when you retire.
4
The other approach is to dissolve the R/E income properties and invest all of it in a diversified market index fund based low cost portfolio to provide for short, and long term needs, security, etc.
5
If number 4, then there is a best pattern to dissolve the properties so you don't get tax slammed and so forth. Everything does not have to be done all at once. It can take 5 years to sell property after property and then DCA (dollar cost average) into the investment portfolio.
6
There is the matter of which properties are single owned and which one's are jointly owned with other beneficiaries. IMHO, sell the one's that are jointly held first which releases each person from that tie and burden. Then, after that, each person makes their own decisions on their own holdings without involving the other. If the joint holdings are lare, then, if need be, yes, look for a reputable property management company to handle things on a very short term contract, or monthly with no contract (since you are selling the buildings incrementally). As long as you are earning a "NET" 6% CAP rate after paying all fees and expenses and taxes, and mgt company fees, you are doing okay.
7
You do not need a "financial advisor", "wealth manager", "helpful uncle harry", "friendly bank personal rep.", "brokerage professional", etc, to do the above. The paid professionals are "salesman", so caution. The helpful free people input subjectively and do not have financial liability so caution there as well.
Again, consider resources such as a "fee only advisor" for an investment portfolio initial setup, or Vanguard VPAS services which has a very low fee, no contract, and can do initial setups very well for you. No charge to consult with either initially.
8
When in doubt for anything and the slightest anything, talk to "your own" legal counsel and CPA.
Especially in regards to tax liabilties. So, tax attorney or CPA.

I hope this is helpful to you and others in the same or similar situation.
These types of things, especially inheritances because they happen so fast, can be overwhelming, and I hope that the above missive gives you a start on thinking abou things in a certain structure that is less stressful.

Aloha
j :D
dis laimer: zillions of paths and options and opinonions on zillions of things, this is only one.
Wiki Bogleheads Wiki: Everything You Need to Know
ChrisC
Posts: 1475
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: Real Estate

Post by ChrisC »

As always, it depends on a lot of factors which aren't disclosed in this thread. If each parcel in the portfolio is assigned to different siblings and there is no cross-over of joint ownership, this would diminish potential family dynamic issues with the other sibling. For instance, if there were 4 multi-tenant brownstone buildings in the portfolio (and located in a trendy, transitional neighborhoods like Williamsburg or Bed-Stuy, Brooklyn), I might be inclined, if I owned two of the buildings, to hold them for a while even if I had to consign management to a property management firm. I wouldn't bet against NYC real estate not appreciating over the long term. Also, if the buildings are throwing off a lot of income, that would militate in favor of keeping them as a financial resource.

My siblings and I own one brownstone building in Brooklyn worth considerably less than value of the OP's portfolio -- was purchased in 1962 and throws off decent rental cash flow, but we've decided to sell it in the near future. One of the primary drivers is family dynamics and the other is the age of the building, built in 1899. Building maintenance issues have become more troublesome the last 10 years (we renovated the facade a few years ago, which cost us $220K) and the plumbing and electrical wiring probably met pre-WW-II code. And the building is located in a Landmark District, which means that any outside building renovations (like replacing windows) must be approved by the local Landmarks authority. Our facade project took us nearly a year to complete.

If I could without any hard-feelings from my siblings, I'd buy out their shares and gut-renovate the entire building and turn it into a one family residence. Unfortunately, this would strain my own resources and probably create hard feelings in the long run.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

ChrisC wrote: Wed Sep 22, 2021 3:40 pm As always, it depends on a lot of factors which aren't disclosed in this thread. If each parcel in the portfolio is assigned to different siblings and there is no cross-over of joint ownership, this would diminish potential family dynamic issues with the other sibling. For instance, if there were 4 multi-tenant brownstone buildings in the portfolio (and located in a trendy, transitional neighborhoods like Williamsburg or Bed-Stuy, Brooklyn), I might be inclined, if I owned two of the buildings, to hold them for a while even if I had to consign management to a property management firm. I wouldn't bet against NYC real estate not appreciating over the long term. Also, if the buildings are throwing off a lot of income, that would militate in favor of keeping them as a financial resource.

My siblings and I own one brownstone building in Brooklyn worth considerably less than value of the OP's portfolio -- was purchased in 1962 and throws off decent rental cash flow, but we've decided to sell it in the near future. One of the primary drivers is family dynamics and the other is the age of the building, built in 1899. Building maintenance issues have become more troublesome the last 10 years (we renovated the facade a few years ago, which cost us $220K) and the plumbing and electrical wiring probably met pre-WW-II code. And the building is located in a Landmark District, which means that any outside building renovations (like replacing windows) must be approved by the local Landmarks authority. Our facade project took us nearly a year to complete.

If I could without any hard-feelings from my siblings, I'd buy out their shares and gut-renovate the entire building and turn it into a one family residence. Unfortunately, this would strain my own resources and probably create hard feelings in the long run.
Great comments- I updated my post to reflect some of that detail: trendy markets. Per parcel split rather than shares for most of them. They throw off enough to support two people.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Real Estate

Post by smitcat »

AnnetteLouisan wrote: Tue Sep 21, 2021 7:21 pm
Lee_WSP wrote: Tue Sep 21, 2021 6:35 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 5:58 pm
bsteiner wrote: Tue Sep 21, 2021 12:07 pm
AnnetteLouisan wrote: Tue Sep 21, 2021 12:00 pm

Hasn’t passed yet, hoping new step up in basis elimination proposal fails.
Have the person leave it to you in a trust that you control rather than outright to keep it out of your estate for estate tax purposes.
Thank you! If I set up an irrevocable living trust that I control (which I probably will do anyway for my own assets) and he puts the title in the name of the trust, does that work or does he have to set up a testamentary trust to get the step up in basis and avoid gift tax? sigh...
He needs to leave it to you *in trust* (either testamentary or via a living revocable trust which turns into an irrevocable trust upon death) instead of outright (the normal way).

The assets are included in your estate if you received title to them during your life and then placed them into trust yourself. The decedent needs to place the assets into trust where it can then skip over you to the next generation and possibly further. There's a few more requirements, but that is the short version.
There‘s no next generation in the immediate family, unfortunately.
I believe the best approach will have a lot to do with the ultimate goal(s) for these funds. Based upon the limited information so far much or all of these funds have no immediate or clear destination - they are not required nor will they be utilized by any current or known future owner.
Defining the end use of the funds will help determine the best ongoing approach.
User avatar
Topic Author
AnnetteLouisan
Posts: 7239
Joined: Sat Sep 18, 2021 10:16 pm
Location: New York, NY

Re: Real Estate

Post by AnnetteLouisan »

In another post I described efforts to reduce cash in the portfolio. Someone asked if the cash had another purpose. Causing me to remember my concern about having a whopping unpayable tax bill if I inherit real estate. My understanding is people need to pay enormous tax bills to save the properties due to the state estate taxes even if you’re below the federal amount. Isn’t that right? In NY its a lower exemption. Otherwise you may be forced to sell a buyer’s market. I understand one has only seven months to pay.
Post Reply