Explore expert advice on options for a lifestyle change after years of personally managing your multifamily properties
As a hands-on property managing owner, operating your multifamily buildings is your principal business. Unlike many real estate investors, you are not in the transaction business of buying and selling properties on a regular basis. Your investment property is one that you bought and have owned, operated, and self-managed while working to maximize the value of the property for years.
After many years of ownership and daily property management, you have come to a place in your life where you are ready to ease the burden of property management and personally dealing with your tenants—a stressful job that puts you on call 24 hours a day, 365 days a year with no holidays, vacations, or off days as you are responsible for handling any and all problems with your property nonstop.
When you reach the point where you want to retire, you are in a good news only situation. Since you have expertly operated your property by paying down debts and acting conservatively throughout the length of your ownership, you are in an excellent position to win at retirement regardless of how you choose to proceed with your property.
Continue reading to explore the top seven options for retiring as a self-managing property owner from our founder and multifamily real estate advisor, Joe LaFleur.
Remember: You can pick any of the options below to successfully proceed with retirement. The right choice for you merely depends on what you are specifically seeking from your lifestyle change.
The first three options maintain your ownership of the investment property:
Option 1: Don’t retire.
As a self-managing property owner, your first option is to not retire and keep doing exactly what you are doing right now.
Many will try to push you toward retirement, but if you are satisfied with the success you have experienced as a long-time property manager, you do not have to make any changes to your lifestyle.
The advantages of this option include:
- Very high cash flow through your personal property management expertise
- Personal familiarity and security through a complete understanding of the process and expectations
The disadvantages of this option include:
- Highly stressful job
- On-call 24/7 for emergencies
- Personally responsible for handling tenant issues
Option 2: Start to build your own property management team.
If you are ready to ease some of the burden of your job, you can begin building your own property management team by hiring one or two full-time employees.
By establishing a team, you will have more flexibility in your schedule with opportunities for vacation because your trained employees will properly care for your multifamily property.
The advantages of this option include:
- Good monthly income
- Easy to understand
- Less stressful job
The disadvantages of this option include:
- Reduced personal income due to payment of salaries
- On-call 24/7 for emergencies
- Personally responsible for handling employee and tenant issues
This option is extremely low risk because if worst comes to worst, you can always let go of your employees and once again step in as a full-time property manager.
Learn more:
3 Reasons to Hire a Property Manager Now
Option 3: Hire a property management company.
If you’re ready for even greater autonomy, your next option is to hire a third-party property management company who will put their onsite manager and/or staff in place to take care of your property.
With a property management company, there are usually different levels of involvement that you can choose to have in the day-to-day management of your property from only being contacted for emergency situations to working as a part of the company’s team.
The advantages of this option include:
- Good monthly income
- Less personal management expenses
- Easy to understand
- Even less stressful job
- Even less personally responsible for handling tenant issues
The disadvantages of this option include:
- Giving up control of your property
- Paying management fees to the company
- On-call for emergencies
Just like the previous option of creating your own team, this option is extremely low risk because you can always let go of the property management company and step in as full-time manager again if needed.
Learn more:
Property Management 101: Doing It Yourself vs. Hiring a Property Management Company
The remaining options require you to sell your investment property:
With the following options, you will fully exit from the management of your investment property, so you will no longer hold any level of responsibility for tenant, employee, or property issues.
If you choose one of these options, you need to ensure that you are ready to step into a new realm of real estate investing and decide how you will move forward with the proceeds of your sale.
Before we discuss the more complex options, your first choice is to sell the property, take the money, and either live on the nest egg or reinvest it into something else. If you are interested in a more advanced seller option, keep exploring the choices below in order of least to most complex.
Option 4: Sell the property with seller financing.
One of your options is to sell your property with some derivative of seller financing, so that you get a secure monthly check.
You will benefit from all the advantages of relinquishing ownership to your buyer, but still get a check every month that acts as income such as an annuity, bond fund, or triple net lease.
The advantages of this option include:
- Good monthly income
- Easy to understand
- No stressful job
- Not on-call 24/7 for emergencies
- Not personally responsible for handling tenant issues
- Only pay capital gains taxes as you receive the equity, not all at once
The disadvantages of this option include:
- Illiquidity
- If the buyer defaults, you will have to go through the foreclosure process to get the property back
When it comes to this option, the disadvantages may not be an issue for you, it all depends on your unique set of circumstances. If your main goal is to acquire a retirement income, you may not be concerned with liquidity. Even a buyer defaulting is not necessarily a negative depending on how much money they put down. Perhaps at the price and with their down payment, you do not mind running the risk of taking the property back, getting it back up, and selling it again.
Option 5: Sell the property, take the proceeds, and do a 1031 tax deferred exchange.
If you decide to sell the property using a 1031 tax deferred exchange, you will be able to defer all capital gains taxes and depreciation recapture through a like-kind exchange.
With this like-kind exchange, you will need to sell your investment property and purchase another property of equal or greater value. The property you purchase could even be a triple net lease (NNN) or a commercial property which ensures the tenant or lessee pays all property expenses and you are not involved in any management capacity.
The advantages of this option include:
- Good monthly income
- Easy to understand
- No stressful job
- Not on-call 24/7 for emergencies
- Not personally responsible for handling tenant and employee issues
- Defer taxes and use all equity to purchase NNN properties
- Somewhat liquid
The disadvantages of this option include:
- If the lease ends and your tenant choose not to renew, you will be left with a vacant building that you are responsible for finding new tenants to fill
As long as your lease is still in effect, this option can also include a corporate guarantee that your income will come in every month even if your property location closes.
Option 6: Sell the property, do a tax deferred exchange, and invest in a qualified DST, TIC or REIT.
If you would like a slightly more complex option, you can also take a tax deferred exchange and exchange into a qualified Delaware Statutory Trust (DST), tenancy in common (TIC), or real estate investment trust (REIT).
DSTs and TICs are qualified with the IRS to do a tax deferred exchange, so you can exchange into them with your full proceeds while deferring all capital gains taxes and depreciation recapture. The value that these investment structures bring to you as a retiree is that they are set up to pay out monthly or quarterly dividends as an ongoing income stream.
The advantages of this option include:
- Good monthly or quarterly income
- No stressful job; you are not at all responsible for management of the properties
- Defer taxes
The disadvantages of this option include:
- Illiquidity
- If you ever needed a large lump sum, selling out of those can be costly
Option 7: Sell the property, pay capital gains taxes, and invest in stocks and bond funds.
The next option is to sell your property, pay the taxes all at once in a lump sum, and use your equity to invest in the stock market or other passive investments.
The advantages of this option include:
- Good monthly income
- Easy to understand
- No stressful job
- Easy liquidity
The disadvantages of this option include:
- Paying all taxes at once after closing
- Income will go up and down with the market
Option 8: Sell the property, pay capital gains taxes, and purchase income for life annuities.
The final option is to sell your property, pay the taxes all at once in a lump sum, and use your equity to purchase an annuity that sends you a lifetime income stream.
An annuity will provide you with a steady, reliable income stream for the rest of your life from a well-established annuity company. You can even set up the annuity for both you and your spouse, so that whoever lives the longest can rely on the income indefinitely.
The advantages of this option include:
- Good, extremely secure monthly income
- Easy to understand
- No stressful job
The disadvantages of this option include:
- Illiquidity
- Paying all taxes at once after closing
Which retirement option is right for you?
As a self-managing property owner, the options detailed above are all the ways you can successfully retire from your constant, often stressful job.
The choice you make of how to handle the exit of your asset is a major life decision that will affect not only your financial situation, but potentially that of generations of your family to come.
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