When you’re looking at a nine-figure-adjacent gain on a portfolio sale, the charitable remainder trust vs 1031 exchange decision comes down to one question: do you want to keep the money working tax-deferred inside a structure you no longer fully control, or do you want to buy a replacement property at whatever the market is charging today? Dave Fontana, a Hickory, North Carolina operator who sold a property he bought for $6.45 million at $16.2 million five years later, chose the trust. His reasoning: “you’re almost like a sucker if you got a 1031 because you’re overpaying.”
This article walks the structure he actually executed — an irrevocable charitable remainder trust paired with a 501(c)(3) family foundation he stood up himself for roughly $2,500 — plus what it cost, how long it took, what income he can still draw, and what he permanently gave up.
It also covers why the gain existed in the first place: roughly 600 class C+ units bought at $25,000 to $40,000 a door and sold at $75,000 to $125,000, and the specific conditions that made a full exit smarter than another refinance. Nothing here is tax or legal advice. It is one operator’s account of a structure he spent months of sleepless nights getting right.
Key takeaways
- A 1031 exchange solves the tax problem by forcing a purchase — Fontana’s objection is that in a compressed market someone in that chain is overpaying, and on a $16.2M sale that someone is you.
- The structure he used: an irrevocable charitable remainder trust holds the assets, deals now run through it, and the remainder passes to charity after 20 years or on the death of the last beneficiary. He and his partner opened their own 501(c)(3) family foundation to be that charity.
- His attorney quoted about $8,000 and a year to form the 501(c)(3). An online provider did it for $2,400–$2,500 — applied in November, approved by March. Entity formation is the cheap part; the structuring judgment is what takes months.
- He can still draw a salary from the structure and pays ordinary income tax on every dollar he takes. What he gave up is irrevocability and a remainder that ultimately goes to charity, not heirs.
- When block bids on his 26-unit 1990s building came in at $120K–$125K a door, he condo’d it instead. First unit closed at $180,000 with no work done; he expects to blend near $190,000 a unit.
From the Real Estate Pros Show
This article draws on an interview with Dave Fontana of Shook-Tarlton (property management, Hickory, NC) on the Real Estate Pros Show, hosted by Issa Hanna.
Why He Walked Away From the 1031 on a $16.2 Million Sale
The deal: bought for $6.45 million, sold five years later for $16.2 million. That is close to $10 million of gain, and the default answer every broker and CPA offers is a 1031 exchange.
Fontana’s objection is structural, not emotional. A 1031 does not eliminate the tax, it moves it — and it moves it on a clock, into whatever inventory happens to be available at identification. In a compressed market where multifamily is trading at prices he already refused to buy at, the exchange forces you into the exact asset you just decided was overpriced.
The 1031 exchange was kind of, to me, it’s like you’re almost like a sucker if you got a 1031 because you’re overpaying. At some point, to someone, you’re overpaying.
That is worth taking seriously from someone who was simultaneously watching buyers of his own buildings underwrite deals he considered unworkable. He sold a 16-unit and a 9-unit for nearly $2.6 million to a group that raised about $3.5 million total and had roughly $40,000 of their own money in it. He underwrote it himself and concluded there was no path to profit.
Finding an alternative took months. He describes it as sleepless nights, mostly working through the question at night with AI research, asking how wealthy families actually handle large realizations. The first pitches he heard from promoters, he says, “almost sounded shady” — as if it were something not right to do. The structure he landed on was not one of those pitches. It was the conventional version, executed conventionally.
How the Charitable Remainder Trust and Family Foundation Stack Works
The mechanics, as he described them, are straightforward once you see the two pieces working together.
- An irrevocable charitable remainder trust holds the assets. He put everything in. Irrevocable means exactly that — the assets are no longer his personally.
- The remainder passes to charity. After 20 years, or at the point the last beneficiary dies, whatever is in the vehicle goes to a charity the grantor chooses.
- He and his partner became their own charity. They opened a family foundation as a 501(c)(3) tax-exempt entity and named it as the charitable beneficiary.
- New deals run through the structure. The trust and foundation hold the proceeds and the activity, not his personal balance sheet.
- He draws a salary and pays ordinary tax on it. “Any money that I take, I pay taxes on. But it’s what I need to live. And it keeps me active in deals.”
Two details matter more than the diagram. First, he was emphatic that they did not improvise: “Some people are kind of like, well, I’m going to do it my own way. No, we did it exactly the way it’s meant to be done.” The version of this structure that gets people in trouble is the customized version.
Second, the trustee is his accountant of 20 years. A charitable remainder trust hands operational control to a trustee, and on a gain this size that relationship is the load-bearing element of the whole plan.
Charitable remainder trusts, private foundation rules, and self-dealing restrictions are technical areas with real penalties for getting them wrong. This is a description of what one investor did with counsel and a long-standing accountant, not a template.
We really do it the way it’s meant to be done. Some people are kind of like, well, I’m going to do it my own way. No, we did it exactly the way it’s meant to be done. The trustee for my trust is my accountant. He’s been my accountant for 20 years.
— Dave Fontana, Shook-Tarlton Property Management
What It Cost and How Long It Took to Stand Up
The entity formation was cheap and fast. The thinking was neither.
Fontana’s attorney told him he could not do the 501(c)(3) quickly — the quote was roughly $8,000 and about a year. He found an online provider that would file it for $2,400 to $2,500. His honest first reaction: “I thought it was a scam.”
It wasn’t. He applied in November and had approval in March. Call it four to five months and $2,500 for the charitable entity that anchors the whole structure.
The useful lesson for anyone pricing this out is where the real work sits. Forming a nonprofit is an administrative task with a known cost. Deciding whether an irrevocable trust is the correct answer to your specific gain, choosing a trustee, sequencing the contribution relative to the sale, and confirming the whole thing holds up — that is the part that consumed months. Fontana was researching this himself at night while running a portfolio sale, and he still ran it through his attorney and his accountant before executing.
Budget accordingly: modest formation costs, meaningful professional fees for the trust and the tax work, and a runway measured in months rather than weeks. If you are inside a 45-day identification window and only now considering alternatives, you are already too late for this route on that particular sale.
The Tradeoffs an Owner Actually Accepts
The charitable remainder trust is not a better version of a 1031. It is a different bargain, and the things you surrender are permanent.
- Irrevocability. Assets go in and do not come back out to you personally. There is no unwinding it if your plans change at 60.
- The remainder goes to charity. Not to your children in the conventional sense. Fontana’s two sons are both in finance and, as he put it, don’t want rentals — which made this an easier call for him than it would be for an owner planning a direct asset handoff.
- Income is ordinary income. The salary he draws is fully taxable. He is not living tax-free; he is holding onto the full sale proceeds inside the structure instead of writing a large one-time check.
- Total dependence on a trustee. His is a 20-year relationship. If you don’t have that person, you don’t have this structure.
- You need to actually want the charitable outcome. His foundation funds orphanages, schools, backpack drives, and a soup kitchen. That is the point of the vehicle, not a side effect.
Set that against the 1031’s bargain: you keep full control and full ownership, your heirs may get a step-up, and in exchange you accept a deadline and whatever the replacement market is charging. On a $2 million gain in a market with real inventory, the exchange is usually the simpler and better answer. The trust only starts making sense when the gain is large enough that the tax cost of selling outright is transformational and the replacement pricing genuinely does not work.
The Portfolio Conditions That Made Selling the Right Move
The exit only mattered because the basis spread was enormous. Fontana and his partners accumulated roughly 600 apartments in and around Charlotte and Hickory, North Carolina, buying class C+ product at $25,000 to $40,000 a unit — B-minus buildings at the top of that range. They sold into $75,000 to $125,000 a unit. He was buying before the buzz, when sellers were local owners rather than, in his words, sharks.
He stopped buying about two years before the interview and started selling everything. Four things drove that:
- Functional obsolescence in the older stock. This is the subject of his forthcoming book. His example: a “two-bedroom” where the second bathroom is upstairs and the ductwork drops the ceiling to seven feet. “You can’t use numbers for a real two-bedroom.” Someone eventually gets left holding the bag.
- Insurance costs rising across the portfolio.
- Banks reluctant to refinance the older assets.
- Agency servicers pressing on deferred maintenance — items he says often weren’t genuinely deferred maintenance at all. Between that and the other pressure, “it became hard to make money.”
The buy-side signal he distrusted most was buyers asking him to leave money in the deal. On the $2.6 million sale of 25 units, the buyers wanted $150,000 left in — he reluctantly agreed. On a 41-unit sale at $3.35 million, $300,000 to $350,000 went back in. He does not know whether that has become a standard strategy, but he underwrote both deals and could not make them work. When the buyer’s capital stack only closes because the seller stays in, that is a pricing signal about the asset class, not a creative structure.
A Second Exit Route: Condo Conversion Instead of a Block Sale
When whole-asset pricing doesn’t clear, sell the units individually.
Fontana bought a 26-unit building in 2022 — 1990s vintage, good area. When he took it to market as a block, offers came in at $120,000 to $125,000 per unit. He declined and condo’d the building instead.
The first unit closed at $180,000 with no work done to it. He is selling the rest a mix of ways: some strictly as-is, some renovated to a higher-end rent-ready standard. He expects the portfolio to blend out around $190,000 a unit. Against a $125,000 block bid across 26 units, that spread is roughly $1.7 million.
His own framing: “it’s maybe like an oversized flip.” That is the right way to think about the labor involved. You are running individual retail closings, one buyer at a time, with the legal work of the conversion in front of it and a much longer disposition timeline than a single closing. The math has to be big enough to pay for that.
The conditions that made it work here are worth noting: newer vintage than his C+ stock, a location that supports owner-occupant buyers, and unit-level retail comps well above what an income-based investor bid would ever produce. On a 1970s two-bedroom with seven-foot ceilings in a C neighborhood, the retail bid does not exist and the block sale is the only exit.
Frequently asked questions
What is the difference between a charitable remainder trust and a 1031 exchange for a large property gain?
A 1031 exchange defers the gain by requiring you to buy a replacement property within a set window; you keep full ownership and control of the new asset. A charitable remainder trust removes the assets from your personal ownership permanently — an irrevocable trust holds them, you can draw income, and whatever remains after a set term or the death of the last beneficiary goes to a charity you designate.
The practical difference is what constrains you. The exchange constrains your timeline and your purchase price. The trust constrains your ownership and your ability to pass the remainder to heirs.
Can you still take income from a charitable remainder trust after you sell the property?
Yes. Fontana takes a salary from the structure and pays ordinary income tax on every dollar he draws. His description: it covers what he needs to live and keeps him active in deals, while the trust and foundation retain 100% of the sale proceeds.
The amount and form of permitted distributions is governed by how the trust is drafted and by the applicable rules, which is why the drafting and the trustee selection matter more than the entity filing.
What does it cost to set up a family foundation as the charity for a charitable remainder trust?
Fontana’s attorney quoted roughly $8,000 and about a year to form the 501(c)(3). He instead used an online filing provider for $2,400 to $2,500, applied in November, and had approval by March. He assumed the cheap option was a scam and it wasn’t.
Treat that as the cost of the entity only. The trust drafting, the tax planning around the sale, and ongoing compliance for a private foundation are separate professional costs and are where the real spend sits.
Why would an experienced operator sell a stabilized class C multifamily portfolio instead of refinancing it?
Because the refinance may not be available, and the asset may not deserve it. Fontana cited four converging pressures across roughly 600 units: functional obsolescence in older buildings, rising insurance costs, banks reluctant to refinance, and agency servicers pressing hard on deferred maintenance items. His summary was that it became hard to make money.
With a basis of $25,000 to $40,000 a unit and exit pricing of $75,000 to $125,000, selling captured the full spread rather than borrowing against it and continuing to own an asset with a shrinking useful life.
When does converting an apartment building to condos beat selling the whole building to one buyer?
When retail per-unit pricing meaningfully exceeds what an income buyer will bid. Fontana’s 26-unit 1990s building drew block offers of $120,000 to $125,000 per unit. Sold as individual condos, his first closing was $180,000 with no work performed, and he expects to blend near $190,000 a unit.
It requires the conditions to line up: a vintage and location that attract owner-occupant buyers, and enough spread to justify the conversion work and a disposition that runs one closing at a time instead of one closing total.
The bottom line
If you are staring at a gain large enough that the tax bill changes your life, start the alternatives conversation with your accountant and attorney months before you are under contract — not inside a 45-day identification window, when the exchange becomes the only option you still have time to execute.
