18 rentals owned free and clear

Investor · Sarasota, FL · Member since 2016 · 45 posts · 19 votes

I have 18 rental properties Free and Clear bringing in 18K a month and worth around $1.6 million. I happily manage them myself but I want to retire in 7 years at the ripe old age of 55. How do I do this?

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Jason Chen

Tampa, FL · Member since 2017 · 240 posts · 153 votes

Step 1: Sell all properties

Step 2: Put 1 million dollars into cryptocurrencies

Step 3: Wait 7 years

Step 4: Collect 100 million dollars

19 Reply

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Austin Fruechting
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
Cash out refinance them and roll those (tax-free) proceeds into a lot more units or apartment building or syndication or REIT... crank that cash flow way up. Then you'll have plenty of monthly income to retire and pay a property manager if you wanted.
10 Reply
Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
9y
All you'd need to do is find a good property management company and turn the management of the properties over to them. Your cash flow on all those free and clear properties should have plenty of extra room to pay a PM and still have enough left over to live comfortably.
4 Reply
David Faulkner
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Do you mean that you can't retire on $18k/mo? Or that $18k is gross and you can't retire on the net? Or are you saying that the job of managing them yourself won't allow you to retire? Because to me, it seems that you may already be able to retire tomorrow ...
16 Reply
Jason Chen
Tampa, FL · Member since 2017 · 240 posts · 153 votes
9y
Step 1: Sell all properties
Step 2: Put 1 million dollars into cryptocurrencies
Step 3: Wait 7 years
Step 4: Collect 100 million dollars
19 Reply
Derrick E.
Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
9y
Originally posted by @Adam Klugh:

I have 18 rental properties Free and Clear bringing in 18K a month and worth around $1.6 million. I happily manage them myself but I want to retire in 7 years at the ripe old age of 55. How do I do this?
You are my HERO. That's my ultimate goal. Owning them free and clear.
1 Reply
Derrick E.
Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
9y
Originally posted by @David Faulkner:

Do you mean that you can't retire on $18k/mo? Or that $18k is gross and you can't retire on the net? Or are you saying that the job of managing them yourself won't allow you to retire? Because to me, it seems that you may already be able to retire tomorrow ...
That's what I was thinking. $18k/month free and clear properties.....shoot, I've been retired for a few years haha
0 Reply
Jason Chen
Tampa, FL · Member since 2017 · 240 posts · 153 votes
9y
I originally wrote that as a joke, but now realize that it might be such a bad idea after all...
2 Reply
Adam Klugh
OP
Investor · Sarasota, FL · Member since 2016 · 45 posts · 19 votes
9y
@Kyle J. Property managers don't take care of my properties the way that they should but I may have to submit to their crapiness.
@David Faulkner and @Derrick E. 18k a month is comfortable, yes. But I'm not looking for comfortable. I'm looking for change in lifestyle. Want a strategy to double my cash flow in 7 years
@Jason Chen I like your style most, except for when the U. S. Gov puts the brakes on it when it becomes too disruptive
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
9y
If you want to double your cash flow you either need to route most of those proceeds into new units, or cash out what you have to ramp up your number of units.
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Scott Mullins
Manchester, TN · Member since 2017 · 13 posts · 7 votes
9y
I would keep doing what your doing. Awesome job! Congrats
0 Reply
Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
9y
Originally posted by @Adam Klugh:

@Kyle J. Property managers don't take care of my properties the way that they should but I may have to submit to their crapiness.
Totally agree with you. That's why I currently manage my properties myself too. But at the end of the day, you only have two choices....do it yourself or have someone else do it for you.
1 Reply
Chris Purcell
Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
9y
@Adam Klugh
Is this a brag thread? I'm jealous for sure
Once I match my W2 income in rental income
I'm saying bye bye to the W2 job
That's as close as retirement as I'll get. Real estate is fun
8 Reply
Adam Klugh
OP
Investor · Sarasota, FL · Member since 2016 · 45 posts · 19 votes
9y
Kinda a breath thread, but mostly I want to figure out how to convert my management intensive equity into something more easily managed like apartment complex's for high cash flow, and fixed index annuities for hands off security. There are tax hurdles that a 1031 exchange doesn't really fix due to not being able to sell all the properties at the same time.
1 Reply
Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Hi @Adam Klugh,
The 1031 Exchange can address your issues, but it does get more complicated as the number of relinquished properties increase. However, we have had many clients sell multiple relinquished properties in the same 1031 Exchange transaction (or sometimes splitting into two or three separate 1031 Exchange transactions) and essentially consolidate a number of smaller properties into one larger more efficient investment properties such as multi-family investment properties.
The key to more complicated 1031 Exchange transactions like this is to carefully plan the entire process, especially with the timing requirements. You might be able to effectively tie up your Replacement Property by going under contract and having an extended closing., Or you might be able to put the property under a lease with an option to buy so that you have control over when you exercise the option and close on the property, etc. But, it is done all the time.
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Adam Klugh
OP
Investor · Sarasota, FL · Member since 2016 · 45 posts · 19 votes
9y
@Bill Exeter my concern is the 45 day requirement to identify a property. 2 purchase a $2 million apartment complex I'd need about 400k. With my properties averaging around 100k each, I would have to get 4 properties close within that 45 day window. Sounds like I would be at huge risk of major tax penalties of even 1 didn't make the deadline. You have any ideas?
0 Reply
Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
9y
@Adam Klugh, You're concern over the 45 day period is absolutely valid. It only gets compounded when you're trying to fit multiple sales into one purchase and have to mesh that into the time constraints of the first sale. Consolidation exchanges are not necessarily complicated but they do scale complexity as the number of properties and size of replacement increase.
The extended option Bill refers to can be a good idea if the seller will agree. Of course they'll want their assurances and skin for that consideration.
A reverse exchange can certainly buy you more time but even then it is going to limit you to a 180 day window to complete your sales if you use the safe harbor of rev proc 2000-37.
The nice thing about real estate investing is that there truly is nothing new under the sun and you're never alone in your situation. In a mature market like this we are seeing more and more clients just like you who are wanting to transition in type scale and speed of acquisition mode. One thing that I'm seeing more and more of our folks in this situation do in addition to the above options is to use multiple sales to go into a transitional passive vehicle like a TIC or NNN sale or DST.
Rather then sell and move into cash by selling outright and enduring the tax hit to wait for a market correction and good buying opportunity, they will buy fractional passive investments that qualify for 1031 so they can continue to reap tax deferred status, and garner depreciation etc. In cases they have been able to use stacked sales to buy additional TIC% of the same project which in effect consolidates their holdings then. So they can then use one 1031 out at the end of the subscription period and go into their larger asset. You've got to be mindful of the subscription period and what if any buy back clauses there are in the TIC. But done right it can set you up so that rather than hitting singles for the next couple of years in a mature tight market, you can wait on deck and come in for clean up when the market turns and still make your 7 year goal. 7 years is a pretty good time horizon to prep and execute a strategy like this. I'd say your timing is pretty darn good.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
Same boat here. I actually laid in bed last night wondering how I could get rid of all my SFR at one time and 1031 into something triple net like a 7-11 or something along that line. My buddy just sold his flip and got a HUGE price from a hedge fund. I am considering pitching my portfolio to them for an offer, and delaying sale until I get a replacement property under contract. Other option is to sell outright, eat the 25% recapture, etc.
0 Reply
Aaron Christensen
Investor · Puyallup, WA · Member since 2017 · 16 posts · 11 votes
9y
If I were you, I would leverage the equity in your current properties to buy more and grow your portfolio. With an increased portfolio you could afford a full time property manager to handle your rentals.
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
9y
You need to seriously study other investment options.
With 1.6M in equity with a base opportunity investment value of 10% (easily achievable in moderately conservative funds) your equity value should be earning you 13.3Kper month income. When you deduct this from your present rental income of 18K per month your investment properties are only earning you 4.7K per month in true positive cash flow. The other 13.3K is only artificial cash flow that you have purchased at a very high price.
Dead equity has a major negative impact on income investment properties. If you want to double your income you need to realise that your equity must be put to work to earn it's keep. You must remove it from the properties and reinvest elsewhere to increase the true cash flow on your properties and increase the return on your cash.
Only a personal opinion but 18K is a obscene amount of money and far more than anyone should need for retirement.
8 Reply
Chris Armstrong
Realtor · Charleston, SC · Member since 2016 · 229 posts · 159 votes
9y
@Adam Klugh
Congratulations on making that far, you are literally achieving my goal of having 15-20 completely paid off properties. Well done Sir!
My plan is to have those properties paid for and then slowly exchange a few at a time using 1031 process into large more efficient properties like 50+ units and then max out cash flow and enjoy life. All by the age of 50. I am 30 now and have 4 units working for me (1 completely paid for)
How long have you been working your plan? How did you get your portfolio so large? Did you reinvest all the cash flow until all the properties were free and clear?
1 Reply
Jeff Small
Investor · Sewell, NJ · Member since 2016 · 68 posts · 48 votes
9y
I know a lot of people will tell you to refinance and buy more, but I'm 65 years old with a paid for properties. Are usually make about 60 or $70,000 a year on these units. I am retired from my former business and this allows me to live very well without touching my investments. I will do this for many many years. Good luck whatever you decide
4 Reply
Austin Fruechting
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
9y
Originally posted by @Jeff Small:

I know a lot of people will tell you to refinance and buy more, but I'm 65 years old with a paid for properties. Are usually make about 60 or $70,000 a year on these units. I am retired from my former business and this allows me to live very well without touching my investments. I will do this for many many years. Good luck whatever you decide
That's not a bad spot to be. If Adam prefers paid off investments in retirement, maybe a hybrid would work. Refinance now, but only leverage to the point where the existing and new investments could all be paid for when he hits 55.
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
9y
I'm in a similar boat as you @Adam Klugh, but my portfolio make-up is probably different. I have 19 paid off doors (of my 34), but it's only 4 properties. I like 7-10 unit buildings. Are yours all houses? No wonder management is an issue.
Please share your portfolio break-down and a quick blast of how you managed to own debt-free! That's awesome!
To the folks who suggest refinancing and redeploying into additional units - I could do the same thing, but the cost of capital is high. One little $100k loan on one little house will cost $3868. I can keep the $3868 and recapture/build organically the amount of cash I would pull out very quickly anyway, because so many are debt free. It's a snowball, really. Not to mention the PITA refinancing is. I'd rather take a nap.
Adam could grow organically as well most likely, but if he's running around crazy already, would more help? Listen to the problem. More of the same is probably not the solution. Systems and maintenance/admin/leasing help is.
Good luck, either way. It is a good problem you have. Obtaining quality help would be my priority.
7 Reply
Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Hi @Adam Klugh,
The 45 calendar identification period is always the most stressful part of structuring a 1031 Exchange transaction. Proper planning and coordination between all of the closings is critical to the success of your 1031 Exchange.
The ability to some how tie up and control your target replacement property without actually closing on it allows you to then coordinate the closings of your relinquished properties.
The Reverse 1031 Exchange could work as well as Dave mentioned. The challenge is that your equity is trapped in your relinquished properties, so closing on your replacement property through a Reverse 1031 Exchange can be problematic. It would likely take some creative financing structures (hard money, private money, seller carry back financing, etc.) in order to temporarily financing the purchase of your replacement property through a Reverse 1031 Exchange transaction.
It is also possible to start off with a regular Forward 1031 Exchange, sell and close on as many of your relinquished properties as possible, and then combine/merge the Forward 1031 Exchange into a Reverse 1031 Exchange, which would allow you to close on the replacement property with those relinquished properties that have already closed and then go into the Reverse 1031 Exchange, which would provide you with another exchange cycle/period to complete the sale of the remaining relinquished properties. This would be a more complicated structure and more costly, but would provide you with more flexibility in structuring the entire transaction with so many moving parts.
I would disagree with the TIC, NNN or DST replacement investment option for what you are trying to accomplish. Acquiring multiple TIC, NNN or DST assets would spread your equity over a number of properties and make it even more difficult to consolidate all of the equity into one larger multi-family purchase. The TIC, NNN or DST can be a very effective tool in "absorbing" left over/excess 1031 Exchange proceeds after you have completed your intended replacement property acquisition. It can also be a way to save your 1031 Exchange if you get toward the end of the 45 calendar day identification period and find yourself in a jam.
End of brainstorming session! LOL.
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
9y
Originally posted by :

Property managers don't take care of my properties the way that they should but I may have to submit to their crapiness.
Have you considered taking a new, young ambitious investor under your wing? You could train them on how to manage properties, they could learn the business by helping you manage yours, and you'd get benefit by having someone do something your way and taking the time burden off of you. They'd get benefit by learning from someone much more experienced.
Ultimately, if you wanted to be completely hands off, you'd have to turn it over to a licensed company versus just working with an assistant.
Congrats too, on having so many paid off rentals. I own 17 rentals, and have 12 owned free and clear. So I'm getting there!
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