Let’s get down to a more or less real time, real life example. I’ll use an investor owning over a dozen investment properties spread out geographically. This example will be a composite investor. I’ve taken factors/properties from existing and past clients, along with folks with whom I’ve been talking recently. Let’s get started. But first, a word about pictures.
I include pictures in my posts which aren’t connected in any way to the posts’ content. I do it ‘cuz it pleases me, and with the hope it pleases my readers. They should resume tomorrow.
Tonight I’ll address what the scenario is, some personal info, and the initial portion of the Purposeful Plan I’d construct for them. As the series progresses I’ll flesh out the specific reasons for the advise given. It’s important that I keep each post to a more or less digestible size. Know what I mean, Verne?
First, let’s figure out a few things about the properties themselves. Where are they? When were they acquired? Their equity to value? Condition? How’s their local real estate market performing? And….well, you get the idea, right?
The Porters are in 40′s — Scott is 46, Nicole is 41, and they have three kids. The oldest is graduating from college this spring, one’s a college freshman, the other a high school junior. Between them they earn around $130,000 a year, give or take. They have just over $300,000 in their 401′s — a figure that only 18 months ago was well over half a million bucks. Even after taxes, and 401k contributions, they manage to save about $20,000 yearly. They live comfortably, but aren’t impressing the Joneses.
They realize their current reality isn’t what they had in mind when they began ‘planning’ almost 20 years ago. What their plan has been, if brutally honest, is a ‘go with the flow, figure it out as you go’ approach. Lord knows how much they’ve left on the table by wingin’ it the way they have so far. My experience tells me it’s at least half a million if not more. Oh well, spilt milk, etc., right?
The Porters own 14 properties, all but one of which are 1-4 units. The lone exception is a 52 unit apartment complex in Cincinnati. They break out more or less as follows.
6 properties with combined negative cash flow of $1,650/mo.
8 properties that break even, or cash flow, 2 of which cash flow significantly. The bottom line net cash flow for their portfolio is positive, but should be more so — and soon will be.
Broken down differently, here’s how I might look at outlining a Plan for them — at least the front end.
2 properties simply need to go, as they were slaughtered in the market correction — a boat in which many are now rowing. The Porters will either take small losses on them, or barely break even — if they’re lucky.
The property in Ohio should be kept, at least for now, as it’s a solid ‘backstop’ for the growth they need to generate over the next 15-20 years or so. It’s generating roughly $3,000 in sheltered monthly cash flow, which augments the Porter’s Sominex (cash reserve) Account very nicely, thank you.
6 properties should be sold in an orderly fashion, moved to better locales with superior potential for capital growth. These properties, valued at roughly $1.5 Mil will generate net proceeds, after loan payoffs, costs of sales, and seller concessions of give or take $425,000. I’ll speak to what they will acquire and how it might be structured later in the series.
There are 5 properties located in 2 separate growth regions. I like these, and will advise the Porters to let them be. They’ll provide solid capital growth, and should be ready to move on to bigger and better things in the years to come.
Among the many consequences of putting this first portion of the Plan into action will be an almost immediate savings of $20,000 in negative cash flow annually — and that’s before tax. With what we’ll be having them do further into the front part of the Plan, their after tax income will move up big time.
The biggest hurdle with the Porters was getting them to feel comfortable with deep-sixing their local properties. But once they saw the real life numbers, especially the before & after tax cash flows, and what it was ultimately gonna mean for their personal lives, they double clutched into high gear. It’s our clients’ epiphanic moments, especially like those, that often brings us the most satisfaction.
Their initial actions will be to list the 2 loser properties for immediate sale. The sooner they’re eliminated the better. Simultaneously they’ll put 3 (half) of the properties designated for sale or exchange on the market. Once they’re under contract, the other 3 will be listed, and marketed for sale or exchange.
This initial stage of the Plan will take as long as it takes. However, my guess is the first 5 properties will be under contract in the next 2-6 weeks — assuming they follow our sales strategy, which usually, but not always results in market times far shorter than market averages.
Alrighty then, that’s enough for tonight. Tomorrow we’ll take it up from this point. We’ll talk about what their Plan will allow them to do as a family, which isn’t talked about much when real estate investors dash off to invest without a real Plan. But seriously, how can any Plan not factor in the investors’ family, and their lifestyle? Sometimes it doesn’t alter the Plan a whit. Sometimes though, as in the Porter’s example, the Plan can have ginormously positive affects on every day life.
We’ll talk about those factors and what strategies the Porters will put into motion tomorrow. This is gonna be some series. 
If you’re seeing yourself here, whether it’s with a much smaller portfolio or larger, give me a call and we’ll talk about it in depth. Hey, I’m easy, and I need a fix — you already know by now I’m addicted to this stuff, right? My number is 619 889-7100 or just send me a note using the Contact BawldGuy whatchamacallit at top right middle of the site. Have a good one.
Related posts:
- The Capital Growth Oriented California Real Estate Investor — Oxymoronic
- As A Real Estate Investor Ya Gotta Pick — Capital Growth or Cash Flow
- The First Time Real Estate Investor: A Chronology — Part III
- The First Time Real Estate Investor: A Chronology — Part I
- The First Time Real Estate Investor: A Chronology — Part II (Info Dumps)
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These are fun to read and very encouraging. Thanks!
Good to hear. We’re wading in a little more deeply tonight.