Middle Door HomesMiddle Door Homes
Classic brick apartment building courtyard

For property owners

From active landlord to passive investor - without the tax bill.

You've built real equity in multifamily real estate. But between managing tenants, deferred maintenance, and the tax bill that comes with selling, the path forward isn't obvious. The §721 exchange gives you a better option - passive income, diversified ownership, and no taxable event.

0%

Taxes at closing

30,000+

Units managed by leadership team

8-10%+

Target annual return

You've spent years building a concentrated real estate position with significant embedded gains. Selling means surrendering 30-40% of that value to capital gains and depreciation recapture. Managing indefinitely means your capital keeps working - but so do you. Middle Door Homes offers a third path.

The tax problem

Long-term owners carry decades of appreciation. Selling triggers capital gains and depreciation recapture - often costing 30-40% of the building's value.

Operational drag on returns

Small multifamily buildings require constant attention - tenant calls, aging systems, deferred maintenance. At some point, the active management burden stops being worth the return on your time and capital.

No clean exit from operations

A 1031 exchange defers taxes, but requires identifying a replacement property in 45 days and closing in 180. You're not exiting active operations - you're just changing which building you're running.

The solution

A 721 exchange - not a sale

A 721 exchange is an IRS-approved strategy that allows you to contribute your building to a professionally managed portfolio, in exchange for a passive ownership stake - without a taxable event at closing.

You do not sell. You do not lose your income. You simply stop managing. Your equity moves forward intact into a diversified, professionally operated portfolio.

The key distinction

A 721 exchange is a contribution, not a sale. The tax event that would occur at sale is deferred - so you keep 100% of what you have built.

Why not a 1031 exchange?

A 1031 also defers taxes, but you face a 45-day identification window and 180-day closing deadline - and you end up managing a new building. A 721 exchange has no deadlines and no replacement property. You contribute once and exit active ownership permanently.

Tree-lined street with classic brick multifamily buildings

Compare your options

How a 721 exchange stacks up

Sale1031 ExchangeDSTMiddle Door
Tax deferred at closing✗✓✓✓
Exit active operations immediately✓✗✓✓
No replacement property to find✓✗✓✓
Diversified real estate portfolio✗✗✓✓
Upside participation (not fixed distributions)✗✓✗✓
Transparency into underlying assets✗✓✗✓
Structured redemption windows post-lockup✓✓✗✓
Purpose-built for small multifamily✗✗✗✓

DST = Delaware Statutory Trust. DSTs defer taxes but use a blind-pool structure with no transparency into owned assets, pay fixed distributions with no upside participation, carry high minimum investment requirements, and offer no redemption mechanism. 1031 exchanges defer tax but require identifying a replacement property within 45 days and closing within 180 - and you remain an active operator afterward.

What you receive

A tax-efficient transition to passive income

Tax deferral & estate planning

No capital gains or depreciation recapture at closing - your full equity basis rolls forward intact. OP units can pass to heirs with a step-up in cost basis, potentially eliminating the deferred tax liability entirely.

Continued ownership with upside

You own a passive LP stake in a diversified, professionally managed portfolio - with ongoing cash distributions and participation in portfolio appreciation over time.

Truly passive income

Operational responsibility transfers completely at close. Institutional-grade management handles tenants, maintenance, leasing, and compliance. You receive distributions, not work orders.

Structured liquidity post-lockup

After an initial lockup period, structured semi-annual redemption windows give you flexibility as your financial needs evolve.

Working with us

Grow your NOI, without the operational burden

Most small multifamily owners are not capturing the full NOI potential of their buildings. Deferred maintenance, below-market rents, and high operating costs compress returns year after year.

Institutional-grade management drives cash flow improvement through expense reduction, rent optimization, and operational efficiency - passing that upside to you as a passive LP.

Professional management delivers ~20-50%+ incremental cash flow at scale - the same playbook we apply across the Middle Door portfolio.

Classic brick apartment building

Qualifying

Is this a fit for you?

Classic brownstone apartment buildings on a tree-lined street

MDH works best if:

  • ✓You own one or more 2-49 unit multifamily buildings
  • ✓You've held long enough to have meaningful embedded gains
  • ✓You're ready to exit active operations, but the tax cost of a sale is too high
  • ✓You qualify as an accredited investor (generally: net worth over $1M excluding primary residence, or annual income above $200K)
  • ✓Your mortgage is moderate relative to the building's value

It's probably not the right fit if:

  • -You need immediate, unrestricted liquidity
  • -Your building carries a high mortgage relative to its current value
  • -You want a short-term exit rather than a long-term passive investment
  • -The illiquid nature of a private partnership does not fit your financial situation

The best way to find out is a conversation. There's no cost, no obligation, and we'll give you an honest answer.

Process

Step by step

01

Conversation

We discuss your building, your financial situation, and your goals. No obligation - we want to understand if the model is genuinely a good fit.

02

Evaluation

We assess the building and structure the exchange terms. You get full transparency on your passive ownership stake and what to expect.

03

Contribution

You contribute the building via 721 exchange - not a sale. Not a taxable event. Your existing mortgage is paid off at close. Your equity moves forward intact.

04

Ongoing income

You receive regular distributions from the portfolio. Our team manages everything, working to grow your income over time.

The owner experience

What happens after you contribute

On close, title transfers to the Operating Partnership and your OP units are issued. From that point forward, you are a passive investor. Everything operational transfers to MDH.

Quarterly distributions

Regular passive income from the portfolio, paid after operating expenses, debt service, and capital reserves - subject to portfolio cash flow.

Annual K-1 tax schedules

You continue to receive pass-through tax treatment as an LP, including your allocable share of depreciation from the portfolio's properties.

Audited financial statements

Annual audited financials and quarterly portfolio reports covering occupancy, capital improvements, and market conditions - full transparency into what you own.

Nothing to manage

Tenants, maintenance, leasing, compliance - all of it transfers at close. You become a passive LP on day one.

Common questions

Frequently asked questions

The 721 Exchange

What is a 721 exchange?+
A 721 exchange (also called an UPREIT contribution) is an IRS-approved strategy that lets you contribute real property to an Operating Partnership in exchange for OP units - a passive ownership stake in the partnership. It is a contribution, not a sale, so no taxable event occurs at closing.
How is a 721 exchange different from a 1031 exchange?+
A 1031 exchange also defers taxes, but requires you to identify a replacement property within 45 days and close within 180 - and you end up managing a new building. A 721 exchange has no identification window, no deadline, and no replacement property. You contribute once and exit active ownership permanently.
Is this a sale?+
No. You are contributing your building to the Operating Partnership in exchange for OP units. Because it is a contribution rather than a sale, no capital gains tax or depreciation recapture is triggered at closing.
Do I need to be an accredited investor?+
Yes. OP units are securities and this offering is limited to accredited investors - generally those with a net worth over $1M (excluding primary residence) or annual income above $200K ($300K joint). We can walk you through the requirements.

Tax & Structure

What taxes do I defer?+
Both federal long-term capital gains (typically 20%) and depreciation recapture (25% rate on prior depreciation) are deferred at closing. Your equity rolls forward intact. State taxes vary by location.
What happens to my deferred taxes eventually?+
Deferred taxes become due when you sell or redeem your OP units. However, OP units can be passed to heirs with a step-up in cost basis - which can eliminate the deferred tax liability entirely for the next generation.
What is my ongoing tax treatment as an OP unit holder?+
You continue to receive pass-through tax treatment. You receive a K-1 each year reflecting your allocable share of income, deductions, and depreciation from the portfolio's properties.
What happens to my mortgage?+
Your existing mortgage is paid off at closing from the contribution proceeds. Only your net equity moves forward as OP units.

The Process

What does the process look like from start to finish?+
We start with a conversation about your building, financial situation, and goals. If it looks like a fit, we assess the building and structure the exchange terms. You review a full term sheet with your advisors. If you proceed, we close the contribution - title transfers, your mortgage is paid off, and your OP units are issued. From that point forward, you are a passive investor.
How long does the process take?+
Typical timeline from first conversation to close is 60-90 days, depending on due diligence complexity and third-party timelines. We move as efficiently as possible.
Do I need my own attorney or CPA?+
Yes, and we encourage it. This is a significant financial transaction and you should have independent counsel review the terms. We will provide full transparency on the documents and work cooperatively with your advisors.

Returns & Income

What return can I expect?+
We target 8-10%+ annualized returns through distributions and portfolio appreciation. Returns are not guaranteed and depend on portfolio performance, occupancy, operating expenses, and market conditions.
How are distributions paid?+
Distributions are paid quarterly, after operating expenses, debt service, and capital reserves. The timing and amount will vary with portfolio cash flow.
How does my income compare to what I earn now?+
Most long-term owners are not capturing full income potential - deferred maintenance, below-market rents, and high operating costs reduce returns. Professional management typically drives 20-50%+ incremental cash flow at scale, which can mean meaningfully higher passive income than you are earning today.

Liquidity & Exit

Can I get my money out?+
OP units are not publicly traded and are illiquid for an initial lockup period of approximately 2-3 years. After lockup, structured semi-annual redemption windows provide flexibility, but liquidity is not guaranteed on demand. This is a long-term investment.
What are the risks I should understand?+
Real estate investment carries real risk. Property values can decline, occupancy can fall, and returns are never guaranteed. The portfolio is geographically focused, so a broad market downturn would affect returns. Performance depends on MDH's execution - past experience is not a guarantee of future results. We want you to go in with clear expectations.
What if I change my mind after contributing?+
Once you contribute, the building belongs to the Operating Partnership and cannot be returned. OP units can be redeemed in semi-annual windows after the lockup period, but you should treat this as a long-term commitment going in.

This is illustrative only and does not constitute an offer to sell securities. Actual tax liability depends on your individual circumstances. Consult a qualified tax and legal advisor before making any decisions.

Ready to explore your options?

There is no obligation. We start with a conversation to understand your building and your goals - and to see whether a 721 exchange is the right fit for you.

Request a conversation