Here’s an example of how multiple strategies for flippers can work to create an improved retirement.
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today let’s talk about how flippers can employ multiple strategies synergistically to increase both the size of their ultimate retirement income and the speed at which they make it happen. I know that both of those factors are germane to everybody’s plan. Now let’s go back and review from the first video on this topic. Our flipper began to acquire long-term investment real estate. He bought several small income properties. We then assigned a comfortable portion of his after-tax profits to long-term debt reduction. He defined comfortable. I suggested discounted notes might be a solid addition to his plan. Now, he agreed. We looked at what if we begin directing the after-tax note payments to his debt elimination, along with his real estate cash flow and his flipper profits? Our flipper acquires properties till it makes sense to stop. Now, he assigns the largest comfortable portion possible of after-tax flipping profits to pay off these loans. He uses profits to acquire discounted notes. Now the after-tax note payments are then also used to pay down those loans ASAP. Because that’s the idea. Keep your eye on the ball. That’s the ball. Think about it. He now has flip profits, income property cash flow, and note income paying off all his long-term real estate debt. But wait. There’s more. We also had him set up his own solo 401K. Now both he and his wife can contribute after taxes $17,500 a year until their 50, $23,000 a year after 50. The plan, and I always say do it on the Roth side, we’ll then begin buying discounted notes in earnest. They’re going to be serious, note-buying campers. The payments accrue tax free. Ditto with the note profits. Remember it’s on the Roth side. He then can access these tax-free income from his specialized 401K at 59-1/2 if he chooses. He doesn’t have to. Now if he began at 50, that’s about 10 years of note investing. The contributions alone will kick butt. But let’s be specific. I don’t know what number kick butt represents. Okay? The minimum tax-free income generated by just their contributions, and I got out my 12C to figure this out, is going to be at least $6,000 a month. Add to that the random payoffs of the notes, resulting in more notes, generating higher payments. He keeps getting raises. So where are we? He arrives at retirement with real estate cash flow, and two sources of note income. He never would have had that. What’s even better is that the note income keeps growing every time one of his notes pays off. He gets random raises after he’s retired. Now how cool is that? If our flipper bought five small properties, generating $16,000 a year apiece, that’s $80,000 a year income, about half of which is going to be tax sheltered for how ever many years are left on the depreciation schedule. Now in his case, that’s probably about 17 years. His notes on the personal side will have grown organically during the same decade. Once his real estate is paid off, he now has those payments as more retirement income to use as he sees fit. He’s retired. The notes are paid off. Now those things are taxable, but income nevertheless. Furthermore, just as in his 401K, they randomly pay off. He’ll owe capital gains taxes lower than personal income taxes. He’ll then buy bigger notes with higher payments, and there we go with raises in retirement again. Here’s the take-away. He’ll have created a retirement income with three separate income streams. One is tax free by definition. One is significantly tax sheltered. And one is completely taxable, but wouldn’t have even existed but for his decision a decade earlier to buy the notes personally. Again, I got out my trusty 12C, and his income will easily be at least $200,000 a year in retirement, some tax free, some tax shelter. You can’t beat that. He wouldn’t have had anything close to that. He can retire with a smile on his face. This is Jeff Brown, the BawldGuy. I know this has helped some people. If you have any questions, just go to the comments section and fire away. See you next time.