Best Cash Flow

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Best Cash Flow

Account Closed
Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes

Hello BP!    I have a client that owns a rental home here in San Diego since the 70's she is ready to do a 1031 exchange and will have 400k after sell.  She is retirement age and doesn't want to deal with property managing herself any more.  She will need them managed.  My question to the community is what would you do if this was you and you had 400k to exchange into more cash flowing property or properties.  Should she jump into apartments at her age?  Should she buy cash? Use leverage? buy single family or mulit family?  What area should she buy? Thanks for the input.

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Justin R.
Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
10y

@Account Closed named several), the day-to-day reality is that this investment is known, simple, predictable, and low-risk for her.  You could do a lot worse than just showing her this calculation and advising her to stay the course.  Risk-adjusted returns matter a lot more than absolute returns.

I'll stop there to see if you're in agreement with those numbers.  If Grandma really just wants more monthly free cash flow, there's plenty of different directions to go.

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  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    Why not keep the rental she already has and hire a PM to manage it? If she owns it since the '70s I'm sure it cash flows quite well, and if it ain't broke ...

    Of course, you may not get paid if she does that, but that may be the safest play for her ...

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    I'm assuming the $400,000 is her equity and it is probably so low since she has cashed out refi'd before.  Her tax base is probably crazy low so that any CA replacement property will cost her a minimum of $500 EXTRA a month.  So you have to find an investment that will produce $500+ a month profit JUST to break even.  Good Luck!

    Lot's of moving parts here with Prop 13, capital gains, depreciation, potential Prop 60-Prop 90 tax base transfers.  A lot more information is needed just to make a guesstimate on what would be best for her.  Sadly, most estate/financial planners are woefully ignorant of ALL the ramifications and tend to be experts in a small range.

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    Ouch! everyone hates a Realtor! Luckily this is my grandmother and I have her best interest and will be doing this transaction for free. She never mortgaged it and purchased the property for 35k in 1972.  Bob Bowling This is a rental property so does not qualify for prop 60-90, does qualify for prop 13 and she pays 600.00 a year in property taxes so more like 5,000.00 increase yearly if she stayed in SD,CA. She has depreciated all 27.5 years! Why would she buy for cash flow in CA? just  one of my duplexes out of state brings in almost as much as her one single family worth 3x's as much? she gets 1850 a month rent  and has no mortgage. Using the 1031 she should be able to by an asset of 1.5 million or greater. My question would be what do you think she should exchange it for?

    0Reply
  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    10y

    Hi @Account Closed

    She may want to look at some other options that would not require her day-to-day management attention.  These are not right for everyone, but they are some of the options that you might want to consider.  You should speak to a person who is an expert in each of these fields:

    • Net Lease Properties (often referred to as Triple Net Lease)
    • Tenant-In-Common Investment Properties (often referred to as TICs)
    • Delaware Statutory Trusts (often referred to as DSTs)

    It is important that you help her with her due diligence to make sure that any of the above might be appropriate for her.  They can provide some nice cash flow, but they may have up front loads/fees that need to be reviewed. 

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
    WebsiteView Page
    4Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    10y

    So your plan is to leverage granny to the hilt on an out of state multi-family?!? Bob and I already have suggested what the likely best asset would be, where, and why, though you may not like the answer ... your last post demonstrates a fundamental misunderstanding of REI IMHO, which is one thing if you are investing your own money based on this, yet quite something else when you are playing with granny's money. I have no doubt that you sincerely have her best interests at heart, but fear that you are misguided and your free transaction may end up costing her millions.

    1Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    so your saying keep the property and do not leverage it for better opportunity?  Even if she leverages 50% and bought a 800k property don't you think she could get better cash flow? isn't a 1031 standard practice for most investors to pyramid up? I have done 5 1031 exchanges this year for clients all increasing cash flow and net worth.... Please explain how more cash flow and her asset now being wort 1.6 million will cost her millions?

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    so your saying keep the property and do not leverage it for better opportunity?  Even if she leverages 50% and bought a 800k property don't you think she could get better cash flow? isn't a 1031 standard practice for most investors to pyramid up? I have done 5 1031 exchanges this year for clients all increasing cash flow and net worth.... Please explain how more cash flow and her asset now being wort 1.6 million will cost her millions?

    Please Please Please learn the difference between PROFIT and cash faux.

    1Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    @Account Closed @David Faulkner I take it you two are not a believers in the 1031 exchange

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    @Account Closed @David Faulkner I take it you two are not a believers in the 1031 exchange

    Pay attention and listen. 

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    sorry i'm new. maybe i'm lost. due explain. it was my understanding that granny can deffer all taxes into new property as a down payment?

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    any good cpa's or accountants thoughts? shouldn't she re start the depreciation with larger assets?

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    What is your plan?  Sounds like you want Granny to 1031 her $1.6 million property into 32 $50,000 pieces of CRAP.  Geez, I'd love to see the closing costs on ALL those properties.

    Sounds like Grannies investment has produces almost $3,000 a month just in appreciation over the last 600 months! 

    Depending on her desires she could transfer her residence tax base and then convert it to a rental and 1031 her income property into a rental that could be converted into the personal residence.  A LOT OF MOVING PARTS.  You seem to know enough to lose her money.

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    I told her to play it safe with 400k loan at 4% and 800k apartments in nicer area B  or greater if they are out there?

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    I told her to play it safe with 400k loan at 4% and 800k apartments in nicer area B  or greater if they are out there?

    So she will then pay capital gains on about $800,000? Plus pay about $1,000 a month more in taxes just to have a depreciation against HOW MUCH INCOME?

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    why would she not defer till she died and leave it in the trust?

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    why would she not defer till she died and leave it in the trust?

    Defer What?

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    capital gains, depreciation,  then it will increase the  bases and assigned a new one? then re start depreciation clock for 27.5 years? thanks for your help

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    yes. thats the real question can you get more than 1300 cash flow by selling and 1031.

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y

    @David Faulkner and @Bill Exter and I have tried to give you paths to explore.  I will not spend time incrementally trying to solve Granny's situation.  If you want help put the WHOLE situation out there and you can receive TONS of helpful information.  It seems you are willing to spend thousands in closing costs, lost appreciation, capital gains just to get a reset on depreciation against "granny's" current income?  Doesn't make sense. 

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    @Account Closed I was not aware of capital gains? I thought you can defer all capital gains in a 1031? Lost appreciation of 15% in SD ? who can predict that? interest rates at 4% investment loan why the heck not. Her intent was to get more income is why she started calling not for the write off.

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    @Account Closed I was not aware of capital gains? I thought you can defer all capital gains in a 1031? Lost appreciation of 15% in SD ? who can predict that? interest rates at 4% investment loan why the heck not. Her intent was to get more income is why she started calling not for the write off.

    You said she had a $1,6 property and would only 1031 to a $800,000 property,  You will pay capital gains on the excess.

    I can predict appreciation based on actuals better than you can predict cash faux. 

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    I apologize for not posting this scenario correctly originally @Account Closed and will correct my posts in the future, but I stated granny will net 400k from her sale of her rental property. I am headed to bed thanks for your help

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    I apologize for not posting this scenario correctly originally @Account Closed and will correct my posts in the future, but I stated granny will net 400k from her sale of her rental property. I am headed to bed thanks for your help

    Sounds like Granny utilized her equity in her $1.6 million property if she only has $400,000 equity.  Hopefully the pool boy was worth the service.  But you seem to NOT realize what she has to invest to accomplish a 1031 without any capital gains.  It would be sad to spend over $100,000 of her $400,000 in taxes.

    0Reply
  • Account Closed
    OP
    Realtor/Investor · San Diego, CA · Member since 2015 · 133 posts · 73 votes
    10y

    @Account Closed either that or you chose to completely ignore the whole thread as it clearly states granny has a free and clear property that would sell for 410k or so and Net her 400k or so she never mortgaged the property and bought it cash in 1972. Your almost insulting and name calling.  I agree you are the master.... ha ha   Is it always like this here?

    4Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

     Please explain how more cash flow and her asset now being wort 1.6 million will cost her millions?

    Please explain 

    0Reply
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