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“Stevie, it’s your number one brother calling.”
“You mean my only brother.”
“Very funny. Look I’ve been thinking about something important I want to pass by you.”
“Sure, but it sounds ominous. Not health I hope.”
“No, no, fortunately, my back situation seems to have stabilized. I can get around and I can walk about a block or two. I still have trouble getting up from a chair.”
“Better but not great. So what’s up?”
“I want to sell the Jacksonville properties.”
“Seriously? Why now?”
“I just don’t want the stress anymore of flying from Ft. Lauderdale to Jacksonville every month, especially now with my back and all. And I’m tired of all the conflicts with property managers. They just want to function as administrative secretaries, clearing their desk of repair requests as fast as they can and using their own vendors.”
“Who, of course, know they’re guaranteed the job without any competitive bids. They have a blank check with your signature on it. A second bid only takes up more of their sweet time. I’m constantly on the phone to remind them to get another estimate.”
“Stevie, we’re not satisfied with just getting a check in the mail at the end of the month without knowing what’s going on.”
“We’re very cost-conscious. When I call about a big expense showing on the monthly report, my guy sometimes acts as if I’m breaking some no-hassle rule. I’m sure we’re regarded as difficult owners, but whose properties are they anyway?”
“I’m done with all that, Stevie. I feel I’ve won the game and now it’s time for me and Rachel to enjoy some retirement. Remember, I’ll be 76 next March and mommy and daddy only lived until 81.”
“But, Richie, I know you realize you’ll have unbelievable capital gains taxes after all these years. Why not just do a 1031 exchange into some easier local stuff?”
“No, I think I’ve really had it, Stevie. I don’t want to be pressured into having to complete the exchange within sixty days of the sale and maybe have to settle for an unattractive deal. Remember, I’ve been a much more active owner than you. It takes a toll. Boy, I’m spent.”
“Of course, I can understand how tired out you must be. I’ve been ready to hang up my spikes for quite a while. But if you sell you’ll be giving up all that stepped up basis for Rachel and the kids.”
“Stevie. what are you guys going to do about your own stuff?”
“We’re going to hold on. With Alberta’s required minimum distribution on the horizon, I don’t need to raise cash and we certainly would like to delay taking the capital gains or erasing them entirely with the stepped up basis. Richie, you’re a real estate attorney, so you know that the new basis could carry over to Arnie, Iris and Gail when Rachel dies.”
“I’m a little embarrassed to tell you about this part, but there’s something else going on with me. None of the kids have expressed any interest in the real estate. Arnie’s in Philly and Iris is in Chicago. Gail is here but certainly not a candidate for running a business. They’ll be getting enough, Jacksonville or no Jacksonville. I guess I feel a little unappreciated. Me and Rachel may have only a few years left together. What are we working so hard for?”
“Richie, I’m all in for you, except for one thing. First you were talking about your health and your fatigue and how it may be time for you guys to move on from all the real estate mayhem. I get that.But just now you were sounding hurt, understandably so, but maybe a little retaliatory. I feel unappreciated, too, for many of the same reasons, so I know where you’re coming from. Just make sure whatever you decide to do is based more on the health and energy drain of getting older than from a vindictive place.”
“Boy oh boy, Stevie, you’re really jerked up with all that psychoanalysis.
“Look, what I mean is this. Remember how devastated you were when daddy sold all the buildings instead of passing the baton over to us? We talked about how he may have felt envious that we had the privileged childhood he never had. And you brought up the importance of transferring family assets from one generation to the next to establish a family estate.”
I know you hate this kind of psychologizing, but you need to think about if your feelings more than your brain are driving your impulse to sell your biggest assets. Otherwise, you’re just recapitulating what your father did to you. What’s the real motivation here?”
“Thanks, Stevie. I will and I’m glad I got your input. But I also realize that though we are brothers we may have different visions of how to go about finalizing our family’s financial plan.”
“Just like we may have different political views .”
“Oh wow, let’s not get into that again. Thanks for hearing me out.”
“Thanks for trusting me.”
Your brother has cycled through several property managers? And he is flying in on a monthly basis to check on the properties and to quiz the manager on his management decisions? Clearly he is struggling with the concept of delegation of duties.
Maybe he needs to reflect on why he can’t seem to find anyone (inside or outside of his family) that is suitable to manage these properties. The answer is looking at him in the mirror.
I don’t blame his kids for staying away from this situation.They probably don’t want their dad to treat them in the same manner as he treats the property manager.
His decision to sell the properties (and the refusal to consider a 1031) seems to be an emotional reaction to his frustration that he can’t be in 100% control any longer.
By the way – the conversation misrepresents the timeframes that are applicable to a 1031 transaction. After the sale of his real estate, he has 45 days to identify the potential replacement properties, and up to 180 days to close on the purchase.
Steve, I share Linda’s view – I’m glad you and your brother have found ways to improve and strengthen your relationship. I hope it continues.
Such a nice thought. Hope your family situation is thriving as well. We had to overcome the normal kinds of sibling rivalry but we’ve been able to put that behind us. We both know time has become precious.
If he’s not happy with the property manager, can’t he get a new one?
If he wonders whether his kids would want the properties, why doesn’t he ask them? And maybe hand over management now if the answer is yes?
If there will be a big tax bill, presumably there will be an even bigger capital gain. Why not take it while you can enjoy it? (Of course, I disapprove of the whole stepped-up basis idea…)
Hi
You ask about property managers, kids and living inheritance. My brother has been through many PMs over the years. It is difficult to find someone who is competent and relatable–where there’s good “chemistry.” His adult children are still in their early 40s, when the idea of needing a steady income stream may seem more remote than it will at 70. I am a proud practitioner of early inheritance. It has been a source of great pleasure for my son and me.
I don’t understand why you think early 40s is too soon to take over property management. How old were you when you bought/inherited your first property? Surely people who have an interest in making money from real estate get started earlier than that.
If you are going to use real estate as an investment vehicle, shouldn’t you be managing it yourself? If you have to use a management company it suggests that you’d be better off investing in something requiring less time and energy. Like a mutual fund.
Thanks for another very interesting article, Steve. It sounds like you and your brother can listen to each other respectfully and agree to disagree sometimes. I hope my sister and I can work together to make safe care arrangements for our brother who lives far away from both of us and is no longer able to manage his own affairs.
Thanks Linda. Yes, my brother and I have become very close. I expect some of that is because we’re the last ones left from my family so there is much shared values, nostalgia and of course we feel some “urgency.” Our biggest disagreement is over politics. We have agreed to disagree and to go on from there. For us, blood is thicker than politics.
I can tell your brother is lucky he has you on his side. If we hang around long enough, we’ll all be where he is now so and will need the same care you and your sister will offer him now.
Integrating article Steve. I frequently mull over what to do with our beach house. There are many considerations, taxes certainly among them, that make it difficult. Your article inspired me to formally layout my options and consequences to help make the best choice.
Such a nice response. As you probably know from your own articles, it’s a good feeling when you learn that your post was helpful.
Sounds like he needs to have real conversations with his kids. Them making their own lives may be a conscious effort not to get into his business rather than complete lack of interest in taking it on.
And there might in time be at least one grandkid interested in an alternate way of earning.
I think it would be better if Richie could work on letting go of his need to oversee the actions of his property managers. Another option would be sell his properties and defer taxes with a 1031 DST investment that would hopefully be less stressful.
If Richie and his wife can hang onto their properties until they die, the inheritance basis will be stepped up so that his children won’t have to pay capital gains and recaptured depreciation taxes.
This was good, Steve. I like how your brother was bouncing his thoughts and ideas around to you and thought you gave him wise counsel of other things to think about. Chris
Thanks. I’m glad about what you said implying my brother could handle the feedback without being offended. It was a concern of mine because he sometimes reads the articles.