I received a call last month from a client who wanted to sell her current rental property,  but did not want to purchase another rental property.

So naturally the conversation turned to the tax savings of doing a 1031 exchange.

Here are the numbers: The house she bought in the 1980s for $150,000 is now worth $800,000, and she owns it free and clear. The rental income is $2000, which is good, but after expenses she only “cleared” mail box money of $1450 per month or $17,400 per year. If you divide that into $800,000 value or the “piggy bank,” then that’s a return of 2.175%  WHAT?? Yes, for all the hassle she was making about the same as a CD.

We talked about doing a 1031 exchange into some units (14 units) where the cash flow after expenses would be $5150 per month. However, my client didn’t want to manage a property. I explained that she could hire a professional property manager and would never have to hear about problems. Well, hardly ever.

Still, she wasn’t comfortable. Instead, we devised a plan where they could sell out of the real estate and avoid the taxes.  Normally, I wouldn’t do this, but at her age she didn’t want to own any real estate.

With the plan, we were able to avoid paying taxes; in fact she got a HUGE tax deduction for using this strategy and has a fixed indexed annuity paying her 3.5% no matter what the market is doing. She no longer has management hassles and is no longer worried about the market going up or down.


If you know someone who has a piece of property they no longer want to own and does not want to buy more real estate,  have them call me and we can see if this strategy is right for them.