How Do I Exit My Real Estate Investments?

Summary

Ramsey Everyday Millionaires: How Do I Exit My Real Estate Investments?

Release Date: July 2, 2025

In this insightful episode of Ramsey Everyday Millionaires, the Ramsey Network delves into the complexities of exiting real estate investments. Hosted by a panel of financial experts including Dave Ramsey, Rachel Cruze, and others, the discussion provides valuable strategies for investors looking to transition out of their real estate holdings, especially as they approach retirement.

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Introduction to Exiting Real Estate Investments

The episode begins with a listener call from Mike in Connecticut, seeking advice on how to exit his growing portfolio of rental properties as he nears retirement.

Mike: "So I have some rental properties that as I get, I guess as I get closer to retirement. I'm looking for some advice on how you would exit owning the rental properties other than selling and just paying the taxes." (00:19)

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Understanding 1031 Exchanges

Rachel Cruze addresses Mike's query by explaining the limitations of 1031 exchanges in the context of exiting real estate investments.

Rachel Cruze: "That's pretty well it if you want to exit. I mean you can do 1031 exchanges but you would be trading these rental properties for other rental properties." (00:36)

She emphasizes that while 1031 exchanges allow the deferral of capital gains taxes, they require reinvesting in similar, income-producing properties.

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Limitations of REIT Exchanges

Mike proposes an alternative approach by considering a shift to Real Estate Investment Trusts (REITs).

Mike: "What do you think about a REIT exchanging into a REIT?" (00:53)

However, Rachel Cruze clarifies why this strategy may not be feasible under current tax regulations.

Rachel Cruze: "You can't, it's not like kind has to be actively managed property and you're not actively managing a REIT. A REIT is more of a mutual fund than it is a real estate investment." (00:57)

She highlights that REITs operate differently from direct real estate investments, making them unsuitable for 1031 exchanges aimed at deferring taxes during property divestment.

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Tax Implications and Professional Advice

Dave Ramsey summarizes the situation, reinforcing the idea that selling the property and investing the proceeds into a REIT would trigger tax liabilities.

Dave Ramsey: "So you'd have to sell it then use the proceeds to invest into a REIT." (01:06)

Rachel Cruze adds a cautionary note regarding the tax consequences of such transactions.

Rachel Cruze: "But you're going going to have the taxes on it. So 1031 tax deferred does not work to a REIT. Not in my opinion. I mean you have to get a professional tax advice if you want but if somebody told you that on TikTok, I would be questioning it." (01:10)

She advises listeners to consult with tax professionals to navigate the complexities of capital gains and depreciation recapture, especially if planning to hold onto properties for extended periods.

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Alternative Strategies: Diversifying Property Types

Rachel Cruze suggests alternative strategies for those looking to simplify their real estate investments while still utilizing tax deferral mechanisms.

Rachel Cruze: "What you can do if you want to do 1031 is move from something that is like if you've got a bunch of houses and you want to move out of the residential drama of tenants, move to a boring tenant like a warehouse deal. Warehouse tenants are boring and a lot of those are triple net meaning they pay the taxes, the insurance and the maintenance and pay you rent and you don't do anything except collect a check then now that's that you can do a 1031 on for some houses." (01:10)

By shifting to commercial properties with triple-net leases, investors can minimize management responsibilities while still leveraging 1031 exchanges to defer taxes.

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Conclusion and Final Thoughts

The episode wraps up with an emphasis on the importance of strategic planning and professional guidance when exiting real estate investments. Rachel Cruze underscores the potential tax burdens associated with selling properties and advises careful consideration of investment alternatives to optimize financial outcomes.

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Key Takeaways

• 1031 Exchanges: Useful for deferring capital gains taxes when reinvesting in similar, income-producing properties.
• REITs: Not suitable for 1031 exchanges as they function differently from direct real estate investments.
• Tax Implications: Selling properties can result in substantial capital gains taxes, making professional tax advice essential.
• Alternative Strategies: Transitioning to commercial properties with triple-net leases can simplify management and still allow for tax deferral through 1031 exchanges.

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This episode provides a comprehensive overview for real estate investors contemplating their exit strategies, highlighting the balance between tax efficiency and investment management. By leveraging expert insights, listeners gain a clearer understanding of the options available to them as they plan for retirement and beyond.

Transcript

[Unknown]

Foreign.

[Dave Ramsey]

This episode is brought to you by SmartVestor. Connect with an investing pro near you.

[Rachel Cruze]

At RamseySolutions.com SmartVestor Mike is in Connecticut. Hey Mike, how are you?

[Mike]

Good, how are you?

[Rachel Cruze]

How can we help, sir?

[Mike]

So I have some rental properties that as I get, I guess as I get closer to retirement. I'm looking for some advice on how you would exit owning the rental properties other than selling and just paying the taxes.

[Rachel Cruze]

That's pretty well it if you want to exit. I mean you can do 1031 exchanges but you would be trading these rental properties for other rental properties.

[Mike]

Right.

[Rachel Cruze]

I guess that's not exiting.

[Mike]

What do you think about a REIT exchanging into an reit?

[Rachel Cruze]

You can't, it's not like kind has to be actively managed property and you're not actively managing a reit. A REIT is more of a mutual fund than it is a real estate investment.

[Dave Ramsey]

So you'd have to sell it then use the proceeds to invest into a reit.

[Rachel Cruze]

But you're going, you're going to have the taxes on it. So 1031 tax deferred does not work to a REIT. Not in my opinion. I mean you have to get a professional tax advice if you want but if somebody told you that on TikTok, I would be questioning it. I don't think that'll work because it has to be income producing to income producing. You can't trade your lake house for another lake house in a 1031 unless you rent it 181 days a year and call it a rental property over six months of the year. So you can't, you can't trade your personal residence in a 1031. It doesn't work. It's income producing property for income producing property. And so you've got to, you know, active. It's actively managed stuff. And so that's what you're looking at. What you can do if you want to do 1031 is move from something that is like if you've got a bunch of houses and you want to move out of the residential drama of tenants, move to a boring tenant like a warehouse deal. Warehouse tenants are boring and a lot of those are triple net meaning they pay the taxes, the insurance and the maintenance and pay you rent and you don't do anything except collect a check then now that's that you can do a 1031 on for some houses. So you could look at doing some of that but otherwise you're going some capital gains and depending on how long you've held them and how far you've depreciated down your basis, your capital gains could be substantial.