What would you do with $1M of 1031 money if you wanted zero landlord work?
My mom has put me in charge of researching this for our family and I’m curious what people here would do.
She’s in her 40s and currently manages our family’s rental properties. They’re held in a trust and the plan is for my two brothers and me (we’re all early twenties) to eventually inherit it.
We’re looking at selling a chunk of the rentals and should have around $1M that could go through a 1031. The main goal is to get completely out of actually managing rentals. Nobody wants to deal with tenants, maintenance, etc. anymore.
Morgan Stanley has shown us a Hines DST that would hold the 1031 money. The specific DST is two large apartment properties in Miami and Chicago, currently with no leverage. The potential path after that is a 721 into Hines Global Income Trust.
I actually really like the idea of the structure. Sell the rentals, defer the capital gains through the 1031, become completely passive, potentially move into a diversified REIT through the 721, and just let it compound.
My problem is the return.
Looking through the Hines offering material, Class I has returned about 6.45% annualized since inception including distributions and appreciation. That seems pretty underwhelming when this money could potentially be left alone for 20-40+ years.
We don't need the income. Ideally every dollar gets reinvested. The long-term goal is for this to become permanent family capital rather than something the three of us eventually split up and spend.
Obviously we could just sell the real estate, pay the taxes and put the remainder into index funds, but depending on the basis/depreciation we'd be giving up a significant amount of capital on day one. I'm trying to figure out how valuable preserving that tax deferral really is over a 20-40 year period.
If you were in this situation and wanted **zero active real estate management**, what would you look at?
Would you stay in DSTs and keep doing 1031s? Diversify across several DST sponsors? Eventually do the 721? Or would you just eat the tax bill and move the money into public equities?
I'm especially interested in anyone who has actually used DSTs/UPREITs. What kind of **realized total returns after fees** have you seen? Is expecting 8%+ long term from completely passive 1031 real estate reasonable, or am I expecting too much from something designed primarily for income and tax deferral?
Not looking for someone to sell me a DST lol. We have a CPA, attorney and advisor involved. I'm mostly trying to understand what questions I should be asking before my family locks up $1M for a long time.