Becoming Your Own Phoenix – Rising From Real Estate Investment Ashes II

In the last epispode we left our real estate investor between a rock and an evil place. He owned props in both CA and Florida, and the news wasn’t good. Each market was racin’ the other one down, neither allowing a sale to happen no matter how hard he tried. $3-400,000 in net equity was beginning to look a whole bunch like well under $200,000. In sophisticated real estate investment circles we call that a bitter pill. And no, it ain’t funny. Been there, lived that more than once.

Allow me to suggest an alternate title for this piece.

How ’bout — My Name is K-Mart, But My Friends Call me BlueLight.

BawldGuy Axiom: If you’re investing for retirement, and contemplating a significant move/change, it better be a slam dunk no-brainer. Retirement planning isn’t a game.

The Status Quo

Net equity of $170,000 — and long term capital losses on every sale. Adding insult to injury, twice mind you, is that our investor (We’ll call him, Kam), will be losing real money, not just ‘tax return’ paper money. Selling the properties will bring real financial loss to him. Knowing this, let’s now segue into the question that must be answered with an enthusiastic “Yes!!”

Does taking losses on several properties in two states qualify in terms of the next 20 years as a slam dunk no-brainer move?

The Facts

Kam might have 30% equity in his CA rental. Cash flow is marginal at best. In Florida, one rental is debt free, the other two provide some spendable net equity. That’s easy for me to say, as the word ‘net’ is so, non-threatening, isn’t it? In Kam’s case it means he’ll probably hafta come up with $10-20,000 to close one of ‘em to avoid a short sale. His cash flow is iffy there too. Yeah, the free ‘n clear unit works — when it’s rented. When the smoke clears his annual cash flow these days runs around $10,000/yr if everything goes as planned. (Hey, I heard that snicker in the back row!)

What to do with the $170,000?

How ’bout a couple Texas duplexes in one of the hottest regions in the country? I’d have him put 30% down which would result in him not having to come outa pocket to close. The cash flow for the two will be roughly $12-14,000/yr. Since Kam already owns a few Texas properties in different locations, his aggregate cash flow plus donations from his own paycheck will result in owning all his investment properties free ‘n clear in considerably less than 20 years — via the BawldGuy Domino Strategy. Based on experience, I’d say 13-16 years depending upon Murphy.

So, in his case, it’s not just the long term positive turnaround of replacing poor investments with quality, it’s the long AND short term impact on his portfolio as a whole.

Short Term

In roughly 6-9 years he’ll have completely paid off both the duplexes acquired via CA/FL. The results of that are:

1. Cash flow of roughly $37,000 annually vs Who knows but not much, and surely not relatively reliable had he not taken the losses.

2. His original net from the sales of his problem babies, $170,000, will have grown to well over $500,000 — with not a penny of projected appreciation — in less than a decade.

3. He’s improved the quality of his properties’ locations to the point of being cartoonish. They’re all located in areas in which people choose to live, vs are forced to live. Huge difference.

NOTE: Before you say it, I’ll recognize the 6-9 year part really isn’t, in the pure sense, short term. But in the context of Kam’s Purposeful Plan — about 20 years — it can be viewed that way in this scenario.

Long Term — This is where the Firestones really hit the pavement.

Due to his willingness to bite the somewhat painful bullet in CA/FL sooner rather than later, his entire portfolio benefits stupendously. This manifests itself in terms of cash flow and net worth as he nears retirement. There’s also a 50/50 chance, maybe better, that he’ll be able to retire sooner than originally planned.

Years sooner.

In Kam’s case, his combined retirement income, including EIUL, should easily exceed $200,000 annually. Oh, did I mention that roughly 50-60% of that will be tax free and/or after tax?

We haven’t even touched the issue of tax shelter, which might be off the charts if we decide to use Cost Segregation. Combine CS with the capital losses he’ll be taking this year and maybe next year, and his options will almost literally be off the charts.

Turning Capital Losses and Tax Shelter planning into Purposeful Planning bonanzas.

This post is already hurtling at breakneck speed towards 800 words. In view of that, I’m gonna address the tax shelter portion in another post, and very soon. Understand, it’s not an afterthought in any way. In fact, for many, including Kam, it could provide a very welcome ‘turbo charge’ to his end game.

I’m really lookin’ forward to writin’ that one.

If you see yourself in Kam’s position, let’s chat. Gimme a buzz at 619 889-7100, and we’ll put our heads together. Or, send me a message by clickin’ on the Contact BawldGuy button up top. Have a good one.

Related posts:

1. How To Rise From Real Estate Investment Ashes – Be Your Own Phoenix
2. Off To Phoenix For Unchained — California Real Estate Investors Singing ‘Lie To Me’
3. Your First Real Estate Investment — Often The Most Critical
4. What Real Estate Investment Strategy Works In Slloooowly Appreciating Markets?
5. A Real Estate Investment Strategy For the Times