Success is a matter of doing many small things correctly over many years, and avoiding major mistakes. We all make mistakes, but do your best to think through and avoid the big mistakes. One big mistake can undo years worth of doing small things right. But the most important is that many small correct steps really add up over time. Too many people hope and pray for one big win (like winning the lottery, etc) to undo and correct years worth of small mistakes, but these are very unlikely to occur. This principal applies to all areas of life, whether financial, health, relational, etc.
I will add that it doesn't have to be an all or nothing deal to sell the real estate, with the typical high closing costs. I've sold a lot of real estate on land contracts, where I tote the note. The big advantage is low selling costs, assuming that you do most of the leg work, plus a small fee if you hire an attorney to draft the contract (which you can reuse for the next one by changing the relevant info). The primary advantage has been a much higher interest rate than I can get at the bank, plus capital gains and recaptured depreciation are only recognized as a percentage of the principal payment each year. The risk is selling to a qualified buyer that will take care of the property and make the payments as agreed, but for me, the benefits have far out weighed the risks. Yes, you may occasionally get a property back, if you didn't properly screen the buyer, but in general, it's a win/win for both parties as you get a higher price than you might otherwise get, plus enough of a down payment so the buyer has skin in the game, then monthly P&I payments for years to come. Most people that I know that are professional or semi-professional RE investors do quite a bit of business this way. Just something else to consider.
Yes, I'd ask the same question. As I recall from prior articles, you have at least 6 and probably more like 10+ units. This should generate plenty of cashflow, I'd think, particularly at CA rental rates. The only reason they wouldn't, that I can see, is if you still have substantial mortgages on them, such as maybe you did cash out refi's, which doesn't sound like you based on your prior articles. Also, if you have lots of equity, but don't want to sell because of capital gains and recaptured depreciation taxes, there are ways that you can sell and invest in 1031 REIT exchanges, to simplify management and provide truly passive cashflow for your wife. I think, from prior articles, that you self-manage, so that's definitely an issue for your wife if something happens to you, but if you don't have any mortgage payments, there should be plenty of cashflow to pay a property manager to do it for you. That'll typically cost you around 20% by the time it's all said and done, but that's still great cashflow. I do realize that at 40 year's you've used up all of your depreciation expenses, so this recapture would be rough if sold and the proceeds pocketed, but this just makes a 1031 even more attractive. Revenue generating real estate is still by far one of the best investments out there, in large part due to the tremendous tax benefits related to it, with write offs, depreciation and not needing to pay self-employment taxes on the revenues, etc. In 2017, Congress took away the 1031 exchange for everything except real estate, I suspect in large part because most of them have substantial RE holdings and they wanted to retain that benefit for themselves. But it still exists for investment real estate, so it makes a lot of sense to take advantage of it, if you really want to sell them, so that you can benefit while you're still alive. I've been an RE investor for more than 25 years, so I understand the tax hit that comes when you use up the depreciation (27.5 years residential, 39 years commercial), but the cashflows from paid-for rentals allowed me to retire 5 years ago at 56 and be a snowbird, leaving the Midwest snow behind in the winter. I can manage the property manager remotely, as well as managing the maintenance and repair, so it's been a great thing for me. Plus I'm one of those guys that has to do something productive with my time anyway. What else could have have invested in back in the 90s, starting with less than $8k out of pocket, and creating a nice mid 7 figure net worth and 6 figure annual income? All without touching any retirement accounts or SS as of yet. Yes, for about 20 years I essentially had 2 jobs, so there was a significant sacrifice in time and effort, but our monthly income, which is more than twice our actual taxable income after various expenses and deductions, provides exceptional free cashflow at this point.
Comments
Success is a matter of doing many small things correctly over many years, and avoiding major mistakes. We all make mistakes, but do your best to think through and avoid the big mistakes. One big mistake can undo years worth of doing small things right. But the most important is that many small correct steps really add up over time. Too many people hope and pray for one big win (like winning the lottery, etc) to undo and correct years worth of small mistakes, but these are very unlikely to occur. This principal applies to all areas of life, whether financial, health, relational, etc.
Post: Help Wanted
Link to comment from March 29, 2025
I will add that it doesn't have to be an all or nothing deal to sell the real estate, with the typical high closing costs. I've sold a lot of real estate on land contracts, where I tote the note. The big advantage is low selling costs, assuming that you do most of the leg work, plus a small fee if you hire an attorney to draft the contract (which you can reuse for the next one by changing the relevant info). The primary advantage has been a much higher interest rate than I can get at the bank, plus capital gains and recaptured depreciation are only recognized as a percentage of the principal payment each year. The risk is selling to a qualified buyer that will take care of the property and make the payments as agreed, but for me, the benefits have far out weighed the risks. Yes, you may occasionally get a property back, if you didn't properly screen the buyer, but in general, it's a win/win for both parties as you get a higher price than you might otherwise get, plus enough of a down payment so the buyer has skin in the game, then monthly P&I payments for years to come. Most people that I know that are professional or semi-professional RE investors do quite a bit of business this way. Just something else to consider.
Post: Alberta’s Money
Link to comment from December 24, 2023
Yes, I'd ask the same question. As I recall from prior articles, you have at least 6 and probably more like 10+ units. This should generate plenty of cashflow, I'd think, particularly at CA rental rates. The only reason they wouldn't, that I can see, is if you still have substantial mortgages on them, such as maybe you did cash out refi's, which doesn't sound like you based on your prior articles. Also, if you have lots of equity, but don't want to sell because of capital gains and recaptured depreciation taxes, there are ways that you can sell and invest in 1031 REIT exchanges, to simplify management and provide truly passive cashflow for your wife. I think, from prior articles, that you self-manage, so that's definitely an issue for your wife if something happens to you, but if you don't have any mortgage payments, there should be plenty of cashflow to pay a property manager to do it for you. That'll typically cost you around 20% by the time it's all said and done, but that's still great cashflow. I do realize that at 40 year's you've used up all of your depreciation expenses, so this recapture would be rough if sold and the proceeds pocketed, but this just makes a 1031 even more attractive. Revenue generating real estate is still by far one of the best investments out there, in large part due to the tremendous tax benefits related to it, with write offs, depreciation and not needing to pay self-employment taxes on the revenues, etc. In 2017, Congress took away the 1031 exchange for everything except real estate, I suspect in large part because most of them have substantial RE holdings and they wanted to retain that benefit for themselves. But it still exists for investment real estate, so it makes a lot of sense to take advantage of it, if you really want to sell them, so that you can benefit while you're still alive. I've been an RE investor for more than 25 years, so I understand the tax hit that comes when you use up the depreciation (27.5 years residential, 39 years commercial), but the cashflows from paid-for rentals allowed me to retire 5 years ago at 56 and be a snowbird, leaving the Midwest snow behind in the winter. I can manage the property manager remotely, as well as managing the maintenance and repair, so it's been a great thing for me. Plus I'm one of those guys that has to do something productive with my time anyway. What else could have have invested in back in the 90s, starting with less than $8k out of pocket, and creating a nice mid 7 figure net worth and 6 figure annual income? All without touching any retirement accounts or SS as of yet. Yes, for about 20 years I essentially had 2 jobs, so there was a significant sacrifice in time and effort, but our monthly income, which is more than twice our actual taxable income after various expenses and deductions, provides exceptional free cashflow at this point.
Post: Alberta’s Money
Link to comment from December 23, 2023