2 Ways to Stay in the Real Estate Industry After Selling Your Portfolio

It’s time to exit your career as a property owner, and you need to seriously consider what you are going to do with the sale proceeds of your real estate portfolio. At the very least, you are likely concerned with how much of the profit you stand to lose in capital gains taxes.

Fortunately, a Deferred Sales Trust can give you a way to structure the sale to realize your capital gains obligation in installments over time, rather than one lump sum. Moreover, should you choose to delay those payments, you have 100% of the purchase price sitting in a trust with nothing to do.

This is one of the primary attractions of a DST. If you don’t need the cash right away, you can hold off receiving it and have a higher principal to invest in virtually any manner you choose. Even better, you can structure your DST so that you receive any interest earned, which usually doesn’t qualify as a capital gain.

Many former real estate investors relish the idea of selling their portfolio and getting out of the business. Still, it’s tough to quit investing altogether. It’s also tough to get used to living without that monthly rental cash flow. A DST can help you do both.

It’s quite possible that you owe much of your success in real estate to alternative money lenders. Banks typically don’t like to approve mortgage loans for unstable, speculative or run-down assets. In other words, they don’t issue loans for most types of real property that attract investors and developers.

So, now that you’ve built and sold your empire, you could be in a position to use your DST to invest in your colleagues’ projects, instead.

1. Private Money Lending

When in sight of a great opportunity, most investors jump at any chance to secure funding as quickly as possible and won’t blink at the extra cost. Private money lenders have three distinct advantages over traditional bank mortgages:

  • Their qualification requirements are lower
  • They don’t require large down payments
  • They can issue the funds much faster

Furthermore, it is flexible. Lenders and borrowers have the freedom to negotiate the contract in almost any way they deem appropriate. They also are not tied down by the interest structure of a bank. Thus, private lenders may choose to earn their profit in several different ways.

One alternative is a point-for-interest exchange. Borrowers who wish to entice lenders to invest in their project sometimes offer to pay three to five percentage points of the total loan up front in return for a lower interest rate. Another is an agreement to share the profit of the finished product. For example, a fix-and-flipper who expects a substantial return may be happier to split the proceeds after the sale rather than make payments with interest.

2. Hard Money Lending

Hard money is a specialized form of private lending that investors typically use for a fix-and-flip or buy-and-hold. Borrowers seek it when they need a loan to get them from Point A to Point B on an investment; Point B typically being a cash sale or a refinance. This is why they are also often known as bridge loans.

The primary risk criteria for a hard money lender is the potential for return. Therefore, it is a particularly attractive option for investors or developers with a gone-soon deal of a lifetime or a poor credit history.

This can pay off in spades for both parties. The borrower can secure money within days for the initial purchase and receive draws as needed for things like rehab costs. The lender mitigates the added risk with interest that can reach as much as 10 points above bank standards and a quick return, usually no more than 18 months.

We know that you probably sold your portfolio because you don’t want to get your hands dirty in the day-to-day operations of property management or development anymore. Still, we also know that it’s hard for an experienced real estate veteran to sit and watch the market activity from the sidelines. Let our experts at Reef Point help you structure your DST so you can keep making deals that help other property investors realize their dreams.