You’ve spent decades building a real estate empire. You have millions in equity. But now, you’re tired. You’re tired of the “Terrible T’s”—Tenants, Toilets, and Trash. You want to retire from real estate, travel, and enjoy your wealth.. But you are trapped by “Golden Handcuffs.” If you sell your portfolio to cash out, the IRS and state tax boards are waiting to take 30% to 40% of your lifetime’s work in depreciation recapture and capital gains tax.
In this episode of the 5-Minute PRIME Podcast, host Martin Maxwell provides the master key to the exit door: The Delaware Statutory Trust (DST). We explore how this institutional vehicle allows you to 1031 exchange out of active management and into total passivity, swapping your duplex for a slice of a $100 million Amazon distribution center.
Tune in to learn:
- The Landlord’s Trap: Why simply selling your properties is the most expensive decision you can make.
- The DST Explained: How fractional ownership of institutional-grade assets (Class A multifamily, medical office, industrial) works as a 1031 replacement.
- The “Boot” Fixer: A strategic hack to use DSTs to soak up leftover cash in an exchange so you pay exactly $0 in taxes.
- The Great Trade-Off: The reality of trading “Control” for “Freedom” and why a 5% passive return might beat a 12% active one.
- The Sponsor Vetting Guide: The critical questions you must ask before handing your capital to a DST manager.
Are you ready to trade your keys for checks and finally enjoy your retirement? Subscribe now to learn the institutional exit strategy.
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Show Notes: Retire From Real Estate
Key Takeaways
- The Golden Handcuffs: Many long-term investors feel trapped between the exhaustion of active management and the massive tax bill (Capital Gains + Depreciation Recapture) triggered by selling. If your goal is to retire from real estate, this is a major hurdle.
- What is a DST? A Delaware Statutory Trust allows you to own a fractional “beneficial interest” in institutional-grade assets (e.g., $100M apartment complexes, medical offices) rather than managing a small property yourself. DSTs can be a key tool for investors looking to retire from real estate without cashing out and facing a huge tax bill.
- The 1031 Connection: Per IRS Revenue Ruling 2004-86, DSTs qualify as “like-kind” property. You can 1031 exchange out of active rentals into a DST tax-free, making it a strategic move for those planning to retire from real estate.
- The “Boot” Fixer: DSTs act as a perfect gap-filler in a standard 1031 exchange. If you have leftover cash (“Boot”) from a primary purchase, you can park the remainder in a DST to avoid taxes on the difference.
- Control vs. Freedom: This is the core trade-off. You gain time and freedom but lose all control over the asset. You cannot refinance, force appreciation, or sell the shares easily (illiquid). Yet for anyone wanting to retire from real estate, this loss of control is a fair trade for freedom and peace of mind.
- Vet the Sponsor: Success depends on the management firm. Look for a track record of full-cycle deals and performance during economic downturns (2008, 2020), not just projected returns. A strong sponsor is crucial for investors who plan to retire from real estate safely.
Action Step:
- Review your portfolio’s exit strategy to identify properties where you feel “trapped.”
- Consult your CPA to compare the estimated tax liability of a cash sale versus the deferral benefits of a DST 1031 exchange.
Mentioned in This Episode
Episodes to Revisit:
- IRS Revenue Ruling 2004-86: The ruling that allows DSTs to qualify for 1031 exchanges.
- “Boot”: Taxable cash left over in an imperfect 1031 exchange.
- Episode 101: 1031 Exchanges.
- Episode 107: Real Estate Professional Status (REPS).
Challenge for Today:
Calculate your “Return on Hassle.”
- Identify your most stressful rental property.
- Calculate the annual cash flow.
- Estimate the total hours spent managing and worrying about it.
- The Question: If you could swap that asset for a check that is 20% smaller but requires zero hours of your time, would you take the deal? If yes, start researching DSTs.
