Look hard enough and there’s almost always a silver lining when financial or economic bad news shows up. When interest rates were off the charts back in the early 80′s, many seniors bought into long term government notes, locking in double digit returns. Sure inflation discounted that buying power, but at least they were yielding 13% instead of 8%, right? We all have stories about making lemonade when life gives us lemons. Let’s look today at how you might use that approach when it comes to eliminating your toxic properties while moving your enlarged equities to more fertile ground.

A client is about to put three of their properties on the market this year. Two he bought at, uh, inopportune times. They’ve been worth less than he paid since a year after he got ‘em. He put quite a bit down though, so there’s still equity to be had — at least enough to live large at Starbucks for a week or two.

The third property was purchased quite awhile ago, and even after this severe market correction, his net proceeds will easily show a capital gain, handsome even. Therefore executing a tax deferred exchange is a must, right? Not so fast 1031 breath.

Since all three have been held long enough to receive long term capital gains tax treatment, there’s another option potentially available. In this particular example the client’s long term capital gain on one property is gonna be roughly offset by the combined long term losses of the other two props. Look at the results of pursuing this strategy vs executing a 1031 on the ‘winner’ property alone.

His annual tax shelter will be significantly higher without 1031.

His monthly cash flow will increase by subtraction: Neg cash flow gone.

The capital gains taxes on his next property(s) will be significantly less next time.

His capital growth rate will now be turbo charged — he’s Outa Dodge! (San Diego)

His newly acquired investments will show positive cash flow to boot.

Ya wanna take away a couple fairly important principles here.

1. Tax deferred exchanges, though very cool and used often here, are not by any means the be all end all solution to every real estate investment question/circumstance.

2. What you’ve seen here tonight is a solid example of what Purposeful Planning is all about. It helps if you’re aware of most of your options. Surprisingly? Most real estate investors aren’t. Not even close.

Tonight’s quick lesson can, and probably should be applied far more often than in recent years for obvious reasons. It’s gonna prove especially effective strategically in places like San Diego, Palo Alto, and other markets with significantly higher than average real estate prices. If you live in relative war zones like Michigan, Ohio, Nevada, or Florida? It’ll be just as fruitful — but from a different perspective.

Whether you need this approach or not, jot down a quick note and let’s talk. Building a quality retirement is much akin to building a healthy body. It takes constant vigilance over long periods of time to succeed. Have a good one.