For many long-term San Diego apartment owners, the biggest question is not, “What is my property worth?”
The bigger question is, “Why would I sell?”
That is especially true for owners who have held their properties for decades. They may have significant equity, low property taxes, and steady income. On paper, holding can feel like the safest option. But the reality is more complicated.
Many older multifamily owners are tired. They no longer want to deal with tenants, repairs, insurance, rent increases, capital improvements, vacancies, city regulations, or day-to-day property management. At the same time, they do not want to sell because of the tax consequences. The fear of capital gains tax, depreciation recapture, and losing monthly income keeps many owners stuck. This is one of the most common conversations we have with San Diego apartment owners.
At ACI Apartments, we recently met with R. J. Kelly and the Wealth Legacy Group®, Inc. team in San Diego to better understand strategies that may help our clients transition out of active property ownership while still protecting income, reducing tax friction, and planning for the next generation. Wealth Legacy Group®, Inc. is a San Diego-based financial advisory firm with clients in 24 states (and growing), and led by R. J. Kelly,. R. J. Founder and Chief Visionary Officer and holds multiple advanced financial designations, including AEP, CAP, ChFC, CLU, MSFS, RICP, and WMCP. He has been featured in the PBS series, “The Financial Advisors”, and his latest book, Radical Retirement Roadmap, is ranked the #1 New Release on Amazon in Family & Personal Growth, and #4 Best Seller in Financial Services.
The goal of that meeting was simple: we want trusted resources for clients who are not just thinking about selling, but trying to understand what life after the sale could look like.
For many owners, the issue is not whether the property has value. The issue is whether selling creates a better path forward.
The Problem With Passing Down a Tired Property
A lot of owners hold real estate because they want to pass wealth to their children or the income funds their current lifestyle. That is completely understandable. Real estate has helped many families build meaningful generational wealth.
But there is an important question owners need to ask:
Will I be passing down an asset, or am I passing down a liability?
If a property has been well maintained, has strong rents, clean books, low deferred maintenance, and heirs who understand real estate, passing it down may make sense. But if the property has years of deferred maintenance, below-market rents, aging systems, difficult tenants, insurance issues, structural repairs, or regulatory challenges, the next generation may not view it as a gift. They may view it as a problem.
In many cases, heirs who inherit a poorly maintained apartment building simply sell it. They may not have the time, knowledge, capital, or interest to operate the property properly. If multiple heirs inherit the asset together, disagreements can happen quickly. One child may want to sell, another may want to hold, another may need cash, and another may not want any involvement at all.
That is how the wealth an owner spent decades building can become fragmented, mismanaged, or sold under pressure.
The better question is not always, “Should I sell or hold?”
Sometimes the better question is:
What structure gives my family the best chance of preserving the wealth I created?
When a Traditional 1031 Exchange Does Not Feel Appealing
A 1031 exchange is one of the most well-known tools for real estate owners. In general, Section 1031 allows investors to defer gain when exchanging real property held for investment or business use into other like-kind real property, provided the rules are properly followed.
For some owners, that strategy works very well. But for others, a traditional 1031 exchange does not solve the real problem. If an owner is already tired of property management, buying another apartment building may not be appealing. A larger property, newer property, or different property may still come with management, repairs, debt, tenants, insurance, contractors, and decisions.
If the owner’s goal is to get out of active ownership, a traditional exchange into another building may feel like trading one set of headaches for another.
That is where alternative planning strategies become important.
Strategy 1: Delaware Statutory Trusts
Instead of purchasing another building directly, the owner may exchange into fractional ownership of professionally managed real estate through a DST. This can allow the investor to remain in real estate, defer taxes through a properly structured 1031 exchange, and continue receiving potential income without managing the property directly.
This strategy can be particularly helpful for owners who want to reduce management responsibility but are not ready to give up real estate income.
DSTs are not right for everyone. They are generally illiquid, the investor gives up control, and sponsor quality, fees, debt, property type, and exit strategy all matter. But for the right owner, a DST may provide a path to move from active landlord to passive real estate investor.
Strategy 2: Flexible Trust Planning
The second strategy discussed was trust-based planning, including trusts which can be set up in a different state than the one you live in. Why? Because certain states like Nevada and South Dakota, have far better protection for owners against frivolous litigation and creditor attacks. This type of planning is important because many apartment owners are not just making an investment decision. They are making family, retirement, tax, and estate decisions, and need added privacy and creditor protection.
A trust-based strategy may help create more flexibility around income, heirs, charitable goals, timing, and control. Normally, it does not avoid taxes, but certain trusts can defer capital gains taxes for up to 25-30 years. The purpose is to structure the owner’s wealth so it better supports their goals during life – the timing of paying taxes – and transfers assets more efficiently after death.
And, if philanthropy is included in the planning, a special trust can be set up to eliminate the tax upon sale and depreciation claw-back. It also provides an income stream, growth of assets with no tax until distributed, protection against creditors, and can even be used to buy real estate – and include financing leverage! (Only a certain kind of charitable trust allows for banks to lend to it, but it can be done!) And, the investor still receives depreciation and other tax benefits to shelter the income from the trust.
For some owners, that could mean creating income while reducing the burden of management. For others, it could mean repositioning real estate wealth into a structure that is easier for heirs to inherit, divide, and manage. For others, it may involve charitable planning, estate planning, or a broader wealth transition strategy.
This is where a financial advisor, CPA, and estate planning attorney should all be involved. The real estate sale is only one piece of the plan. The bigger issue is how the owner wants the wealth to function after the sale.
Strategy 3: Opportunity Zone / Workforce Housing Funds
The third strategy discussed was an investment fund structure tied to housing development, including housing that may serve workforce populations such as nurses, doctors, and other essential workers. In many cases, this type of strategy falls under the broader category of Qualified Opportunity Funds or Opportunity Zone investing.
Qualified Opportunity Funds can provide tax benefits for investors who reinvest eligible capital gains or even ordinary income gains into qualifying Opportunity Zone investments. According to the IRS, investors can temporarily defer tax on eligible gains invested into a Qualified Opportunity Zone Fund, and if the investment is held for at least 10 years, the investor may be eligible for a basis adjustment to fair market value on the QOF investment when it is sold or exchanged. In the meantime, income distributions begin usually in Years 3 or 4, and are largely – if not fully tax sheltered – by pass-through depreciation and pro-rata share of interest deductions.
For apartment owners, this can be an interesting planning tool because it may allow them to transition out of an existing property, reinvest in a mission-driven or development-focused fund, maintain the potential for income and growth, and receive certain tax benefits if the investment is structured and held properly.
Even through the new “Opportunity Zone Fund 2.0” rules don’t take effect until 1/1/2027, we can help you sell in 2026 and have the tax deferral qualify for the new rules beginning 1/1/2027.
These funds are not the same as a 1031 exchange. They have different rules, timelines, risks, and tax treatment. For example, while a 1031 exchange requires the reinvestment of sale gains AND basis, a QOZ fund only requires you to defer the gains from your current sale. Thus, you can put the basis to work somewhere else – and it does not have to be into real estate. It could be used for personal purchases, gifting, buying stocks or other investments, getting a new car, or keeping money for rainy days or the eventual tax bill from the initial sale.
All of this requires careful review of the sponsor, project, location, fees, debt, projected returns, and holding period. (R. J. Kelly and the WLG supply the due diligence for their clients.) But for an owner who wants to move away from direct ownership while still participating in real estate based wealth creation, this strategy is certainly worth discussing.
The Path of Least Resistance
For many owners, the path forward is not just about selling. It is about creating a better structure. If you are tired of managing tenants, do not want to spend money on major capital improvements, and are concerned about the tax consequences of selling, you may have more options than you realize.
The answer may not be a traditional sale. It may not be a traditional 1031 exchange. It may be a more coordinated strategy that includes valuation, tax planning, estate planning, and income replacement.
At ACI Apartments, we can help determine what your San Diego apartment building is worth in today’s market. At the same time, we can help connect you with trusted advisors, such as R. J. Kelly and Wealth Legacy Group®, Inc., to discuss what happens after the sale.
For many owners, this can be the path of least resistance: understand the property’s value, evaluate the tax and income options, and determine whether selling, exchanging, restructuring, or holding creates the best outcome.
You worked hard to build your wealth. The next step should be about protecting it, simplifying it, and making sure it continues to serve you and your family without the burden of active property ownership.