Long term landlord approaching retirement looking to maximize income
Member since 2024 · 8 posts · 6 votes
Long term landlord approaching retirement looking to maximize income
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2yWhen you say you're approaching retirement, how close are you? How much income do you need, and how much do you want?
It sounds like you stand to net (before taxes) about $4.3 million. You can get into a bunch of properties with that much money, but honestly unless you just really love RE I'd be pretty tempted to find a couple of decent dividend funds and just harvest the returns. You should be able to realize 3-5% pretty easily with that kind of money, so then it just comes down to how much work you want to do and how much income you need/want.
I'm a big fan of RE but only as a means to an end. If you've already reached that end - ie if $4 million is enough principal to create residual income that you won't outlive - then I don't see any good reason to be buying out-of-town properties that then have to be managed properly to preserve your investment.
Skyline Properties
18 Replies
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
When you say you're approaching retirement, how close are you? How much income do you need, and how much do you want?
It sounds like you stand to net (before taxes) about $4.3 million. You can get into a bunch of properties with that much money, but honestly unless you just really love RE I'd be pretty tempted to find a couple of decent dividend funds and just harvest the returns. You should be able to realize 3-5% pretty easily with that kind of money, so then it just comes down to how much work you want to do and how much income you need/want.
I'm a big fan of RE but only as a means to an end. If you've already reached that end - ie if $4 million is enough principal to create residual income that you won't outlive - then I don't see any good reason to be buying out-of-town properties that then have to be managed properly to preserve your investment.
Skyline Properties - Member since 2024 · 8 posts · 6 votes2y
Thank you for your post. I am 59 y/o and with California taxes we'd get killed on the sale. Not ready to cash out and lose all that RE income and tax benefits as well. I'm curious if I can get good management to make out of town workable.
- 2yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@William Bohan, Yeah, being a CA resident you'll have to do a 1031 exchange or your tax will approach 40%. Your thought to move that portfolio out of state (and maybe a retirement move to a non-taxed state) would be very timely right now. A couple of thoughts.
1. Active vs passive. there is an argument to take the equity and buy a large managed property. This would satisfy your retirement desire. It would leave your net worth really skewed into one asset and class of asset. Eggs in many baskets or eggs in one basket and watch that basket closely???
2. There is another argument to do the 1031 and purchase multiple replacements with cash. and only take out a mortgage on one or two in order to accommodate the $700K mortgage now. This is most conservative (retirement friendly). And lowest risk. but it also could be the higher option in terms of active management required.
3. A 3rd argument would be to leverage leverage leverage! 4.5 mil would buy an ton of property when used as leverage. But if this equity is really all you have for retirement do you want to give it for the sake of potential returns? Everyone will have a different opinion. I like @JD Martins take on it.
4. Or lastly you could 1031 into passive Delaware Statutory Trusts. Ladder them up so they sell at different times so you'll always have cash flow coming in. and as they sell you continue to 1031 them back into new DSTs or back into bricks and mortar if you're tired of retirement. A 6% DST for 4.5 mil would give you net cash after all expenses of $22,500 which is a big jump from where you are right now.
I'm moving to a hybrid of 4 and 2 myself. Before I retire I want cash real estate. But I don't care if my DSTs have debt. Since it's non-recourse to me.One thing you definitely want to do since you've got a bit of a runway would be to use part of the 1031 to purchase a really nice investment property (maybe in Denver). You'll be able to defer a bunch of tax with this purchase. And after a year or two you can move into it and make it your retirement home without triggering the tax. You'll sell your CA home and the first $500K will be tax free. BOOM - retirement started with a bunch of cash in your pocket and no tax bill to slow you down.
The 1031 Investor5137 Reviews - Member since 2024 · 8 posts · 6 votes2y
Thank you so much ben for the advice. I'm going to take a look at the educational information there. I need to learn more about the dsts including tax ramifications, depreciation and finally liquidity.
- Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes2y
@William Bohan as others outlined, there are several logical options, all with pros and cons (of course.) Another option is to just keep what you have. Do you live in that area? Do you believe in it’s mid to long term growth potential? If you live there you probably have a good handle on the subtle market dynamics.
One significant risk of buying any property out of state is that you have a lot less knowledge and first hand experience with all the nuances of that specific market. You simply can’t ignore the risk of investing in an area that you’re not intimately familiar with. And now with rates being high, plus many areas overbuilt with new apartment buildings, I’d be careful with unknown areas, and also what you read in the media about “hot” areas, up and comers, etc.
I was in a similar situation to yours a couple years ago. In my case I sold off appreciated properties in a location I deemed as having limited future upside, and used the proceeds to eliminate all debt on the better located prime properties I wanted to keep long term. I’m in CA also and paid cap gains on huge profits to the tune of 28%, which included CA state cap gains. I was lucky to split the sales over 2 years, so the first ~80k gain is tax free and 80-480k was at 15%, which I was able to take advantage of twice. (Over 480k was at 20%.) So that helped.
I personally wanted to be more conservative as I pretty much reach “the number” that I needed (note that what “I needed” is different from what “I wanted” or what I was expecting by default.) In my case I was lucky that I still kept half of my portfolio, so didn’t get out of the RE game altogether. But always remember that RE is a risky venture, and you could go through years of less than stellar performance. So think twice before taking any outsized risks, as you already achieved a nice equity base, and you don’t want to end up screwing the pooch by taking unneeded risks ;)
Good luck and keep us posted on your decisions…
- Member since 2024 · 8 posts · 6 votes2y
Thank you Amit for comments. I'm getting some good ideas here from all the input and much appreciate it. I am fortunate to be in a high appreciating beach area. My rents are high at $6300 per 3BR unit so I guess the risk is if economy goes south and no one can afford the high rents. I've heard having too much equity in one property is risky as well. Looking hard at DSTs. Thanks again!
- 2yEric DeNardoPro MemberReal Estate Agent · Denver · Member since 2020 · 364 posts · 151 votes
I like your thinking of focusing on the actions that create more value. I'm in Denver and it's a strong market, and therefore has high prices. Other cities have better COC returns than Denver like Kansas City.
- Member since 2020 · 351 posts · 329 votes2y
Going higher on leverage isn’t likely to help cash flow. In my neck of the woods you can buy houses I’m the suburbs for 150kto215k which cash flow 200/mo on 20% down. So say 50k out of pocket. You could buy about 80 of them, but your cash flow would still end up at 16k which is about what you are making now (actual it would be zero once you account for property management fees). Nevermind you have to buy and manage 80 properties. We have increased our monthly rent to price ratio from your ~0.75% to 1.1% but the leverage ate up all the extra cash flow (even if the total return is likely higher).
You could be a cash buyer and go from your one property to 20 and cash flow 20000/mo but you are still having to buy and manage 20 properties.
You can do better on the total cash flow in other markets or rougher neighborhoods, but the story is similar: you are getting an extra ~25-35% in income for 20x the hassle. There is a reason many folks try to start consolidating as they acquire equity.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
Well, owning out of town means finding good "people" to manage and support your investments... Yes, one approach is to continue with finding other cash flowing property.
Let me suggest some other ideas for you to ponder, especially since you've also mentioned you are looking hard at DST's:
What about Opportunity Zone funds? You might even be able to get out from under the built up tax liability.
With your asset amount, maybe its possible to sell out / 1031 to a REIT, and still cash out leaving behind the tax liability. I've only read about it, but never really investigated it since I don't see it possible for me.
What about private lending? There are broker/matchmakers out there and you can get 12% or better. You would have the tax hit from the sale, but it would be high flowing cash and in still in real estate if you want that. Plus, you'll be higher in the capital stack in debt.
DST's are basically managed funds, in my opinion. What about other funds? There are plenty, especially now, that are providing 10%+ yields, and have a long historical record of performing.
The last two provide the added benefit of providing you access to liquid cash. Your OP sounds like you are more on the cash poor side.
Hope these are useful topics to ponder. Good luck.
- Member since 2024 · 8 posts · 6 votes2y
Thank you David for your post. Wife and I would like to phase out of work here soon so would like to maximize income so we can really enjoy retirement and help out our daughters if needed. What type of fund offers 12%? Thanks again.
Sean
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
Variety: BDC's, MLP's, various closed end funds holding credit/debt instruments and/or MLP's. Some preferred shares. Baby bonds. Some "regular" companies also just like to spit out high dividends.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes2y
@William Bohan oh and they have etf's of some of these assets, too. So, you have your choices of closed ended or open ended structures. Depends on what you want/like.
- Investor · New York City · Member since 2020 · 164 posts · 75 votes2y
Hi William, investing in a syndication or fund could be a good fit given your situation.
Even if there is a crash, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times rental rates increase. Pick solid operators and solid asset classes.
We syndicate self-storage projects. These syndication can provide an 8%+ cash-on-cash return - providing you monthly cash flow - and a 15-20% IRR over the length of the project. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases. Feel free to reach out
- 2yKevin SellersPro MemberLender · Charleston, SC MSA · Member since 2018 · 52 posts · 29 votes
Many of my clients are selling properties that require more active management (like multifamily, SFR portfolios, etc.). They are buying NNN single tenant or NNN multitenant retail properties in TX, OK, SC, NC, GA, FL, AL, TN - the states to which the population is migrating and that have business/real estate friendly governments and lower taxes. With $4+ million in equity, you could conservatively leverage your replacement property(ies) and generate strong passive cash flow from high quality NNN assets.
- Member since 2024 · 8 posts · 6 votes2y
Thanks for this input. I will keep your info for now.
- Member since 2024 · 8 posts · 6 votes2yHi Michael. Thanks for advice. Can you give me some info on this program? This may be a good option at some point.
Quote from @Michael Margarella:
Hi William, investing in a syndication or fund could be a good fit given your situation.
Even if there is a crash, and people downsize, those people will have a need for self-storage, as evidenced by storage occupancy rates during past recessions. And during inflationary times rental rates increase. Pick solid operators and solid asset classes.
We syndicate self-storage projects. These syndication can provide an 8%+ cash-on-cash return - providing you monthly cash flow - and a 15-20% IRR over the length of the project. We're also able to evaluate our rates, and keep pace with inflation, on a monthly and quarterly basis because of shorter term leases. Feel free to reach out
- Member since 2024 · 1 post · 0 votes1y
I’m almost 65 I have about 3 million in property and am strongly considering finding a non profit I believe in and gifting 2 million to them- you don’t have to pay taxes if you do that but they’ll take 5-10% of sale. It could really work for you especially if you don’t want to spoil your children! Ha! You have to pay depreciation but…. That’s just a given. Look into that - the numbers seem to work well for me
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