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598: How to Retire from Landlording with a 721 Exchange
About this Episode
Hear how real estate investors can transition out of active landlording while staying invested in the asset class.
Keith speaks with Ari Rubin, founder of Flock Homes, about using a 721 Exchange to move from directly owned rental properties into a professionally managed partnership structure.
They discuss why exit planning is essential, how this strategy can defer taxes, reduce hands-on management, and provide diversified, passive income and appreciation potential for long-time landlords and portfolio builders alike.
Resources:
To see whether a 721 Exchange could work for your rentals, request a free property evaluation at flockhomes.com/gre
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Complete episode transcript:
Keith Weinhold 0:01
Welcome to GRE I'm your host. Keith Weinhold, when it's time for you to sell your rental property, there's a vehicle you may not have heard of that allows you to exchange it into a partnership. This makes it hands off for you. Defers your capital gains tax and depreciation recapture, while you still can enjoy appreciation and cash flow. It's the exit strategy that helps you retire from landlording, known as the 721 exchange today on get rich education,
Corey Coates 0:34
since 2014 the powerful get rich education podcast has created more passive income for people than nearly any other show in the world. This show teaches you how to earn strong returns from passive real estate investing in the best markets without losing your time being a flipper or landlord. Show Host Keith Weinhold writes for both Forbes and Rich Dad advisors and delivers a new show every week since 2014 there's been millions of listener downloads of 188 world nations. He has a list show guests include top selling personal finance author Robert Kiyosaki, get rich education can be heard on every podcast platform, plus it has its own dedicated Apple and Android listener phone apps build wealth on the go with the get rich education podcast, sign up now for the get rich education podcast or visit get rich education.com
Keith Weinhold 1:17
the same place where I get my own mortgage loans is where you can get yours. Ridge lending group and MLS, 42056, they provided our listeners with more loans than anyone because they specialize in income properties. They help you build a long term plan for growing your real estate empire with leverage. Start your prequel and even chat with President chailey Ridge personally, while it's on your mind, start at Ridge lending group.com, that's Ridge lending group.com,
Speaker 1 1:51
you're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Keith Weinhold 2:07
Welcome to GRE I'm your host. Keith Weinhold, the voice of real estate investing since 2014 today's show should help a lot of people as you grow your real estate portfolio over time. You add to it and you multiply it. You do that by using more of your own money and more of other people's money and more of your equity from one property to buy another property. But we've all got to begin with the end in mind, today's show is about your exit strategy, how to sell your property, whether it's selling all of them or some of them, and you're doing that in both a tax efficient way and a management efficient way, because it's about how to exchange them into a partnership. Still get financial upside for appreciation and cash flow, but yet you achieve about as much passivity as what you would have with a Schwab or say, Vanguard mutual fund. Now, back when GRE began, over 11 years ago, we wouldn't have done a show like this because most new listeners were in acquisition mode learning about the GRE way, and that might still be true, but today, we've got both new listeners and longtime listeners that have engaged with GRE investment coaches and learned from listening to each weekly episode, and have built their portfolios and have turned get rich education into got rich education. Congratulations. A lot of you have now achieved financial freedom, and you're looking for an eventual exit. Now, even if you own dozens of rental properties like I do, you don't feel much management strain most of the time, because also, like I do, you outsource to property managers, but some of you self manage, and you can then achieve real relief when you exit before we bring in our expert guest and discuss The 721 exchange. Hey, you've seen me write about the Iran war in our newsletter, and you've seen me discussing it on YouTube. The short story is that war is really expensive, war is inflationary, and war in Iran could very well be setting us up for another inflationary wave like we had from 2021 to 2023 I'm probably going to talk more about it next week, if the war is still ongoing, and what it means to real estate investors. Also a lot of great episodes coming up here at GRE including the show debut. Two of Redfin chief economist Darrell fairweather PhD, who will be here with us soon as for this week, let's learn about an efficient real estate exit strategy.
Keith Weinhold 5:17
This week's guest is someone that is going to help a lot of you, so I've really anticipated having him on educated at Harvard and Stanford. He went on to become a somewhat conventional investment manager, until he was motivated by his parents experience as Chicago landlords to launch another venture in 2021 which you'll learn about today. Welcome to GRE Ari Rubin
Ari Rubin 5:42
Keith, thank you so much for having me on the show today, and to all your listeners out there. It's great to meet all of you, and thanks for listening in today.
Keith Weinhold 5:49
Yeah, Rubin is spelled r, u, B, I N, yeah, I understand you've heard from some of our listeners
Speaker 2 5:55
exactly, I actually heard about your podcast and your show from a number of our clients will go more into the problem that we're solving and the types of landlords that we work with, but some of them have been listening you to you for a long time. Some of them got motivated to get into real estate because of your show. So yeah, really excited to be here chatting with you today.
Keith Weinhold 6:17
Well, thanks so much. Basically, what you do is you help people retire from landlording, but not real estate. We'll get more into that later. But a lot of times when investors have been in the direct real estate investing game for a while, they begin to feel like they've got their dollars trapped in this real estate game. And it can be easy to argue there's no other place you'd rather have it, but tell us more about that trapped feeling with managing rental properties.
Speaker 2 6:45
Yeah, So Keith, maybe just to start out, I want to just talk about the problem that we're solving at flock. So as everyone knows, and there's a lot of resources out there, real estate is a great place, a great way to build wealth, and it's a lot of work, and it takes a lot of effort and a lot of skill and a lot of time, but we find that not enough folks think about, once you get in, how do you exit? And just for those on the show who are listening, who aren't even in real estate yet, or maybe they're just a couple of years into real estate, you always want to think about your exit, and at a certain point, once you've owned real estate for five years, 10 years, 30 years, at some point in your life, you're going to want to exit, and that's because, at the end of the day, managing and owning Real Estate takes work. You can hire a property manager, but you still have to manage even the best property manager doesn't really solve all the problems of being a landlord. For example, if you have an eviction, you still have to pay for that. If you have a massive capital improvement, roofs to replace, HVACs to do, you're still on the hook for that. Ultimately, you're liable when you own real estate, right? You could be sued. You have a feeling, and you should be responsible for your residence and for the homes. So at the end of the day, at a certain point, every single person in this world will get to the point where they're like, I'm done owning real estate. I want to retire. I want true peace of mind. But the problem with that is, when you're ready to exit, you got to sell. That's really the only way out. Maybe you're fortunate enough to have some kids who want to take over the business or the properties, but you know, if you're like a lot of clients that we work with, your kids, maybe they're on to bigger and better things. They've moved across the country. Or, you know, this generation doesn't fix things like the last one did, right? And so unless you have kids who are really, really ready to step up and be super hands on, you don't have an exit and selling, of course, triggers a huge tax liability. So when you sell real estate, you not only have to maybe kick out your tenants and stage the house and pay all the frictions and all the fees, the biggest thing is you have to pay capital gains and depreciation or capture taxes. And we'll come back into what all that means and all how that looks like. So in summary, when you sell real estate and you've owned for a long time, you could be faced with losing upwards of 30% of your equity, which is a lot of money. That's a big chunk of your nest egg, of your net worth. You also you love real estate, you've done really, really well with real estate. So at flock, we've built the retirement solution for landlords, and we'll go more into how this all works, but essentially, we help people with the most cost efficient, seamless exit strategy by exchanging their equity for shares. In our larger fund. So that's just very quickly, the problem that we're solving and some of the clients, the problem that we work with
Keith Weinhold 10:08
this is important. I'm a longtime real estate investor. I have not self managed in many years, but I basically asset manage my managers oftentimes reading their monthly statements, replying to emails about various things, but yeah, there is some day in which I probably wish to not have to do that anymore, and indeed, selling it all would incur a steep capital gains tax. Now what I've done is I've done cash out refinances and 1031 exchanges along the way to continue to defer any tax obligation that I have. But of course, when I do a 1031, exchange, I grow my portfolio, and there's more to manage,
Speaker 2 10:50
exactly. So you know, you just laid out two excellent options out there for ways to sort of consolidate, or, you could say, even better, leverage your equity in real estate. You can do a cash out refi, and that's of course, where you pull cash out of the properties so you're more liquid, or you buy more real estate, or you can do something called a 1031 exchange. And Keith, I'm sure a lot of your listeners out there know what a 1031 exchange is, but just for everyone listening in in or in case folks are less familiar, a 1031 exchange is essentially a real estate loophole. It used to apply to artwork and airplanes and a lot of other stuff. Now it's just real estate, and it's a part of the tax code that says you can sell your real estate, and if you follow this process within a certain timeframe, and then use what's called a Qualified Intermediary, you can roll those proceeds forward and buy new real estate and defer that tax liability into the future. Now the benefit to that is you just achieve tax deferral, but as you said, you still own real estate, and so for a lot of younger investors out there, a 1031 exchange is a really effective way to continue to grow their portfolio, or be more thoughtful about their approach. But for longer time real estate investors, a 1031 exchange doesn't really solve your problem. You still own real estate, you're still liable for tenants, for toilets, for trash, right? And so if you're trying to really retire from being a landlord, a 1031 exchange doesn't really do that. And of course, a cash out refi, all that does is just take on more debt and more risk and more liability. Great option if you're young and you're still trying to grow when we hear from a lot of clients, maybe not the best option in the second half of your life as you're really trying to focus on wealth preservation.
Keith Weinhold 12:51
Yes, a lot of our listeners are indeed familiar with the 1031, tax deferred exchange. You're typically trading up and deferring your tax on the way. And that trading up, it really just gets you even more into real estate investing, because with almost every 1031 exchange, you're going to own more doors than when you began the process. However, a lot of people aren't as familiar with the 721 exchange. Why are people less familiar with it? Ari
Speaker 2 13:21
great question, Keith, and you're right, less people are familiar with it. So in plain English, the 721 exchange, it's also part of the tax code. It's not a real estate loophole. It actually applies to equities or many other asset classes. And in plain English, what it says is, Keith, you own, let's say a million dollars worth of assets you can exchange. You can contribute those assets into a partnership and receive back a million dollars worth of shares or units of the partnership. And in doing so, it's a tax deferred exchange. There are some nuances that you have to be mindful of, just like in a 1031 exchange in terms of boots and cash out refis, but as a general rule, it's a lot more flexible and a lot more seamless than a 1031 exchange. And so again, Keith, you sell, you exchange, you contribute your properties into a fund or into a partnership using the 721 exchange. You now own shares of that partnership. You get all the returns and cash flow and ongoing tax benefits from owning shares in the partnership. To your question, why do less people know about the 721 exchange? It's very common in large commercial real estate, big real estate investment trusts have been using the 721 exchange for decades. The problem with it is it's really complicated to do. So these transactions are quite laborious. There's lots of paperwork. Historically, you would need an army of lawyers and accountants and tax professionals just to consummate one of these things. Surely, if you had a $500 million apartment building or office complex, you would be familiar with this. But until now, no one had really built this for the little guy. And I'm putting that in quotes, right? Because, you know, if you own 10 single family rental homes, 50 single family rental homes, even one single family rental home, you could have hundreds of 1000s of dollars, millions of dollars of equity. You're not such a little guy or gal, right? But these are the moms and pops who own the vast majority of real estate in this country. And so our idea at floc was to go out and, for lack of a better term, democratize access, to give access to this really powerful wealth preservation tool, the 721 exchange, a mechanism that's been used by ultra high net worth families and big institutional investors and big Wall Street firms for decades, and really enable it to the masses out there, To the millions and millions of hardworking Americans who have built up these properties, these portfolios, for decades.
Keith Weinhold 16:27
I've got to say I had heard of the 721 exchange quite a long time ago, but it wasn't until last year that I became more familiar with it, and more familiar with what you do, and realizing that this could help an awful lot of people. You're listening to get rich education. We're talking with flock homes founder, Ari Rubin, about the 721 exchange, how it works and how it might be able to help you more when we come back, I'm your host. Keith Weinhold,
Keith Weinhold 16:53
let me throw out a simple idea, sometimes doing nothing with your money is actually a decision. Leaving it parked. Might feel safe, but over time, purchasing power changes. So the conversation isn't about chasing returns, it's about intentionally placing money somewhere. Freedom. Family investments works in real estate people use every day, housing, senior communities, essential properties, things tied to living and not trends. Their freedom notes offering is built for accredited investors looking for structured income backed by real assets, not speculation. I am an investor with them myself. The Freedom team makes themselves available to walk through their approach, structure and operating philosophy so you can ask questions and determine alignment before moving forward, while past performance doesn't guarantee future results, their historical operating philosophy has yielded 100% investor payouts backed by over 20 years of experience. If you want clarity before making any moves. Book, a clarity call at Freedom family investments.com or text family to 66 866, text the word family to 66866
Keith Weinhold 18:15
flock homes helps you retire from real estate and landlording, whether it's one problem, property or your whole portfolio, through a 721 exchange, deferring your capital gains, tax and depreciation recapture. It's a strategy long used by the ultra wealthy. Now Mom and Pop landlords can 721 the residential real estate request your initial valuation. See if your properties [email protected] slash GRE. That's f, l, O, C, K, homes.com/g R, E.
Todd Drowlette 18:54
This is the star of the A and E show the real estate commission. Todd rollette. Listen to get rich education with my friend, Keith Weinhold, and don't quit your Daydream. Welcome
Keith Weinhold 19:04
back to get rich Education. I'm your host, Keith Weinhold, here on episode 598 we're talking with flock homes founder, Ari Rubin, where they help real estate investors retire from landlording, but not so much real estate with a 721, exchange is something that can be used for retiring landlords along with active landlords if they're just looking to offload one or two properties to exchange into this partnership that we've been talking about. And Ari on your website. It was interesting. I watched the video of you and a woman where you somewhat had to convince the woman to start this fund that did not have any properties in it yet, which is really interesting. And before we're done, we'll talk about. How many properties you have in the portfolio and how many investors you have, but this is something that an investor can exchange their properties into, and yet they still receive the financial upside of both cash flow and appreciation. So tell us more about that
Speaker 2 20:16
exactly. So I'll just quickly explain how it all works. And I do want to also touch on our first client ever, our first landlord ever. Surely, everyone has their story of how they got started in real estate. But you know, for us, at the end of the day, it's a people business. You know, our clients are the millions and millions of mom and pop landlords out there. Shirley was a single mom, Navy vet physician, had this home that she used to live in. She knew she should be building wealth through real estate, so she held on to the property. It was the middle of covid. She had a long term tenant. The tenant moved out, and she didn't know what to do, and she got mailers every single day on, you know, oh, we'll buy ugly houses and we'll buy this thing, but she didn't want to sell because she knew she didn't want to sell. She wasn't a distressed seller, right? And when she sold, of course, she would be triggering taxes, and she knew real estate was a great asset class to be in, and she didn't want to give up all of that upside. So Shirley was our first client, and she still is with us today, very near and dear to our hearts. And yeah, you should check out the video online. It's an amazing story, and we have many, many stories like that, of families that we've worked with. So Keith, to your question of how it all works, exactly. So Keith or Shirley or Mom and Pop will sell their property. They'll exchange their property for the equivalent value of shares in our fund. So let's say it's a $300,000 house and there's no mortgage on it. We do take properties with a little bit of debt, but let's just say, for easy numbers, you sell the property and you now have $300,000 worth of shares in our fund. So first and foremost, you're no longer responsible or liable for the property. You don't own it anymore. You don't manage it anymore. The tenants, of course, the residents get to stay in the home. It is now one rental property of the many inside of our portfolio that the flock team manages. We collect the rent, we do all the renovations, we hold back for expenses, right? And you are now a fully passive shareholder in this larger partnership. So what does that mean for you? First and foremost, you did not trigger taxes on day one. You get to defer those taxes, just like you would in a 1031, exchange. And of course, you can hold on to it, pass it on to your heirs, who still get the step up in basis. Great. In addition to that, what does this mean that you own shares in this real estate? Well, you're going to get all the returns from the real estate just like you would with your own real estate. So what are the two things that drive returns? The first thing is your paper gains, right? Your equity appreciation. The market goes up in value. Our properties go up in value. You receive appreciation to your equity, to your account. By the way, sometimes markets go down in value. Real Estate doesn't just go up, right? And of course, as that happens as well, your equity account will go down as well. But we believe that over the long term, and if you look back at historical kind of performance of the real estate market, we really believe in single family as an asset class. So that's the first thing that drives your returns. It's the appreciation of the properties. And then, of course, the second thing is the net income. It's the rents that we collect from the properties, less the expenses, property tax, insurance, right, maintenance, vacancy, reserves, all of the regular expenses that you have. We also have, as a large institutional real estate owner, and so those two things together, one, the appreciation, as well as two, the net income drive your total returns from the flock vehicle. You could take cash flow from your investment just like you would from your real estate. We pay that out quarterly. It's never been late. We've been operating since 2021 you know, we have a lot of clients who leave their cash flow in to reinvest it and kind of increase their basis. We have a lot of clients who live on their cash flow like they would Social Security or a pension or something like that, just like they did in their real estate portfolio.
Keith Weinhold 24:44
Now, people sometimes get sentimental about their own home, less sentimental about the rental properties, but if you have any attachment to it, effectively, when you exchange it into this fund, you're still helping get some return from your own. Own properties that you contributed into the fund there, but you're going to be more diversified effectively nationally with the real estate market then
Speaker 2 25:08
exactly. And Keith, you bring up a really great point, which is a lot of our clients and a lot of real estate investors, they're sentimental about their real estate investments, like these are houses that they used to live in, or they built, or they've had the same residents in place for 515, 25, years. I mean, we've literally seen people who have had the same residents in place for a very, very long time, and they have that sentimental attachment. And our clients see one of the benefits to joining flock is they're joining together with other like minded owners to leverage the benefits of scale. They still own that house, but they own it with a bunch of other you know, we now have 1100 homes. We'll soon hit 1500 homes, right? They have some connection to that house, but they're much larger, which means better margins. They're much more diversified. So if, God forbid, something happens that one individual property, their risk is spread out. And of course, you know, they're more passive. They're no longer liable, so on and so forth. So a lot of people really like flock because of that sort of sentimental attachment they have to their real estate. By the way, we also have a lot of people who bought their turnkey providers, or they're just, you know, a business guy or a business gal, and they don't care at all, and they're just like, I don't even know the addresses on these things. Just take this and move on. So we've met and interacted with lots of different types of landlords over the years,
Keith Weinhold 26:43
I'm a turnkey real estate investor. I have not seen most of my properties in person, so there's certainly no sentimental attachment to them. But let's talk more about how it practically works and feels for that investor that say they want to sell three rental, single family homes that total $1 million in value, whether that's their entire portfolio or those three properties are just part of it, would flack do an inspection and then handle the renovations and make an offer
Ari Rubin 27:12
exactly so before I walk you through the process, I want to also just lay out what our incentives Are. We're very different than most real estate buyers. We're not trying to flip houses. We're not a flipper. That's not our business model. That's not how we make money. Our goal is not to buy your houses. You know, in the example, you said three houses worth about a million dollars. Our goal is not to buy them for 900 and flip them and make a quick buck, right? Our goal is to solve this problem for you, to bring you into flock as a client, to of course, then provide you with good financial returns, which means providing the resident with good service, bringing the home up to our standards, hardening the asset and making sure it's a great place to live, and it performs as underwritten. And so what all that means is upfront, we'll give you an initial valuation based on public data, other proprietary data that we have. We'll ask you a couple of questions about the house, and then before we close, we do inspect the property, and after the inspection, our final valuation will either go down in value, if not everything was represented, as you said, or it'll go up in value after inspection, our goal is 50% of the time to increase the value. Okay, which in real estate is kind of a weird concept, because which buyer wants to pay more money? Well, our goal is not to buy low from you, it's to create a fair system for all the clients that have put their properties into flock, right? So we'll then come up with a final valuation. Let's just say, like in your example, a million dollars for those three properties. We then sign what's called a contribution agreement. And by the way, during that period, you're doing due diligence on us. You're getting to know our team. You know people are entrusting us with a lot of money, their real estate, that they've worked, that they know. They know these residents, they know the every corner of that house. So we need to due diligence your real estate, you need to due diligence us, our team, our processes, our systems, our track record, the types of homes that we own. We'll show you every home that we own. We'll walk you through our financials. We get audit. We use a third party fund administrator. We get audited by KPMG every year to make sure our valuations, we use best in class service providers. You'll go through all this information. We do the same. That process typically takes about three to six weeks, and then you come to a decision, Hey, I like flock. I want to move forward. We come to a decision. We like that home. We want to bring it into our fund. It meets our threshold. It's going to be a good investment for all of our investors, all of our clients, in flock. And then we would move forward together that whole process about four to six weeks, and then closing takes about 15 days or so.
Keith Weinhold 30:17
Okay, yeah, it's really important that you offer that renovation and that you take care of that there, I was relieved when I found that out, because really, that's the problem that you're looking to solve to get landlords out of that entire process. And they sure don't want to have to manage another wave of that during their exchange into the fund, and yeah, they want it to be hands off and mostly passive, and therefore have their homes in their flock fund be just about as passive as managing a mutual fund would
Ari Rubin 30:47
be exactly. And that's how we want our clients to think about it. You know, we've seen some folks try to do the renovations on their own. You can do it. We never recommend it, and oftentimes it's more work and more hassle than it's really worth another big thing is, if there's a resident in place, number one for you, kicking out a resident is not a nice thing to do. It's also a drag on your financials. That's several months of no income, right? That you could be earning income, whether it's through flock or elsewhere, and you have expenses, you have insurance, your property taxes during that period. So yeah, we'll take on the whole renovation if required. It's worth adding, by the way, we don't take every property we walk away from, way more properties than we accept. Yeah, you have the buy box. We have a Buy Box, which I'll tell you guys more about. But in addition to having a Buy Box, if a property requires extensive foundation issues or extensive renovations. That's beyond our scope, really, if there's a lot of uncertainty in it, we don't want to be subjecting all of our existing clients to that risk. You know, our view is we never compromise on price, on quality, on risk, and so we don't touch, you know, really messy, really hairy stuff, but we aren't afraid of, you know, rolling up our sleeves, and we'll typically do renovations up to 30% of the value of the home. So we do do a lot of value add work. Some of that is on day one. If it's health and safety and the resident needs certain things, we'll do that on day one. Other things are more value add once the resident decides to leave at some point in the future.
Keith Weinhold 32:23
Well, I'm so glad you brought up earlier about taking care of the tenant, because one of our core missions here at GRE is to do good in the world, provide housing that's clean, safe, affordable and functional. So when it comes to the ongoing property management, I imagine that plays into your Buy Box, where you're only going to have property managers in so many markets, exactly.
Speaker 2 32:45
So we're in about 20 markets around the country. It's kind of a combination of higher yielding markets. These are more like Midwestern markets, Ohio, Michigan, where Memphis, where Baton Rouge. We're also in what I would call more like growth markets, certain markets in Texas where you see really strong net migration right yields are a little bit lower there Denver is similarly as a market where you see a little bit lower yields, but still really positive job growth and economic tailwinds to those markets. We're in about 20 markets. We're open to opening new markets if there's a right kind of partnership and a right strategic portfolio or acquisition or client there. But yeah, we don't take every home, you know. We don't do short term rentals. We really just focus on our bread and butter. What we know how to do, which is one to four unit long term rental properties.
Keith Weinhold 33:39
Well, tell us more about that Buy Box.
Ari Rubin 33:43
So typically, again, we're in about 20 markets or so, also looking to expand. We take single family homes, duplexes, triplexes and fourplexes. We'll look at some condos, but as you know, some HOAs are a little bit too restrictive, and so we just try to stay away from that uncertainty, and then we have a certain yield profile and sort of price range that we're looking to hit. So in every market that differs, in Denver, we wouldn't take over. I think it's a $650,000 home, because once you start getting into the higher which in Denver is actually the median home price is a lot higher in Denver than the national average. Right? In other markets, our average price point, we're in Raleigh and around Raleigh, our average price point in Raleigh is much lower than that. So I'd say on average, our average price point per unit or per door is about $220,000 but yeah, one to four units, we unfortunately don't take pools. Yeah, we don't take properties with pools because of some insurance risks, although we have worked with some owners to bury pools, and it needs to be in a market, just lastly, where we can price it. So if it's a, you know, we're in Denver. That was where we started the business. That's where our headquarters is. You know, if there's a property an hour and two. 20 minutes outside of Denver, kind of in the middle of nowhere on four acres with it's just hard to price that. And so even if we can operate it, we need to make sure we can price it both upfront and then on an ongoing basis. So that's a little bit more about our Buy Box. But if you want to learn more, if you have a larger portfolio, of course, reach out to us. Well, you probably mentioned this, Keith, but it's flatcombs.com/gre, and we'll take a look at your property or your portfolio.
Keith Weinhold 35:29
This can help you retire from landlording, but not real estate. Make it completely hands off for you, but still get financial upside in the form of cash flow and appreciation while getting that tax deferral. And you can effectively make this tax free if these shares are inherited by your heirs with that step up in basis. And you can avoid the capital gains tax, which is typically 15 to 20% depending on your income. And if you have a high income, there's a net investment income tax of 3.8% on top of that, you also had the depreciation recapture to repay if you just sell your property out on the open market, but a 721 exchange prevents you from having to pay for any of that. So you're really solving a terrific problem for people here, Ari and just a great exit strategy for those that want to retire from real estate investing or maybe just sell a smaller portion some problem properties. You have any last thoughts overall about the 721 exchange and how you're helping people with their exit strategy?
Ari Rubin 36:36
Ari, this is like the best kept secret in real estate at the 721 exchange, we're now expanding it to multifamily. Eventually, we want to be doing this for every real estate asset class. I've heard of folks doing this for self storage. One day, we want to do this for gas stations, for small hotels. And really do this across all real estate asset classes. We think the one to four unit space is the most exciting, by far, the largest opportunity, and also the biggest opportunity to really create value for communities and for residents, which is something we're really, really passionate about. And so yeah, I would love to hear from you all. And Keith, thanks again for having me on today. This has been a great show, and I'm a big fan of your listeners and everything you guys are doing here.
Keith Weinhold 37:21
Any savvy investor has to begin with, the end in mind, Ari had a convenient landing page put up to welcome a GRE, listeners again at flockhomes.com/gre this has been valuable, Ari. It's been great having you here.
Ari Rubin 37:36
Keith. Thank you so much. You
Keith Weinhold 37:44
Oh, this has been really informative from Ari Rubin today on an efficient exit strategy that a lot of real estate investors don't know much about, retiring from landlording and yet not retiring from real estate, you're staying in the game, and yet, what you're doing is trading away active management in order to get passive ownership. And it makes sense that they make it hands off and kind of a turnkey exit experience for you. They're not using that term, but I am. If you're looking to retire, you sure don't want to be the one that has to first jump more hurdles at the end and handle an inspection punch list and coordinate with contractors, so they're helping a lot of people, and they seem to be on a good trajectory for success. You know, really, as you're still building your portfolio while you're still in acquisition mode, it's kind of comforting to know that this is out there is an option. It kind of motivates you to want to build your portfolio more now that you know about other options at the end, even if a 721, exchange, time is decades away for you, I don't know if you caught that, they have 1100 homes in their portfolio. Now, as you see over on that landing page that I mentioned, they even simplify your tax filing. You just receive one consolidated annual tax packet prepared by KPMG. If you think it's interesting to you or you just want to learn more about the 721 exchange or get a free evaluation, you can do that again by [email protected] slash GRE that's F, l, O, C, K, homes.com/g R, E, until next week, I'm your host. Keith Weinhold, don't quit your Daydream.
Speaker 3 39:39
Nothing on this show should be considered specific, personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get rich Education LLC, exclusively.
Keith Weinhold 39:58
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