What's your minimum retirement portfolio look like? sell it?

Question

Hi BP members! Think for a second about what you would need to retire on your RE portfolio. For me, it was a comfortable house that I own outright, plus around 30k net annually after expenses and with management and repairs contracted out. The odd thing is, I have already achieved that and I am nowhere near retirement! So now I am wondering.. What If I were to sell all as a retirement package and go back and do it again?.. Could I market it as a package to retirees in exchange for a lump sum? Is the whole worth more than the sum of its parts (six houses and a duplex)? Thanks in advance for sharing your thoughts or experiences.

Gordon

Dave Foster · Answer

@Gordon Starr, The demographic where the whole may worth more than the sum of the parts deals with portfolios that are many times bigger and there is always some "secret sauce" or barrier to entry that makes the portfolio a one of a kind.

If you want to sell all and start over again you'll be better served to sell as singles and place your proceeds into a very long term passive investment.  You can use a 1031 exchange to buy more properties to start over or to move tax deferred into a passive long term real estate investment.

If you don't mind paying taxes you can always forgo the 1031 and move into LP syndications with some of your proceeds.  Or go an entirely different direction and go into securities.

The nice thing about putting the Monopoly game up is that you can always start another game - or play Risk or Jenga instead.

Steve Vaughan · Answer

I'm selling one by one, especially my small residential properties. Selling as they become vacant and need cap ex anyway.

I can control what calendar year the sale falls as to not sell too many in one year.  Last year I did 3, but the 3rd one would have put me into new tax pain, so I extended the closing to this year.  That will be the only one I will do this year without a 1031.

Tax management and dollar cost averaging out, selling at retail to owner-occs by owner has worked so far for me @Gordon Starr.  Selling as a portfolio of this manageable size can put you into unnecessary tax burdens and discounts, IMO.

Just saw how a $500k check would be exciting for you.  I agree!  Until.... you have to figure out what to do with it to earn a relatively safe ROI and until the tax man cometh next April...

My largest one last year was $138k.  The bulk of it and the other one are still sitting in my Vanguard account. Bought a couple non-dividend paying stocks and the rest is sitting in a govt bond fund.  Not as 'fun' as $500k, but I won't be flinching while stroking  a large check when I file my '17 taxes like you will be next year if you sell in bulk.

Jeffrey Holst · Answer

I think selling individually and using proceeds to get closer to what you actually need is the way to go.

Related to you underlying question as in what does your minimum retirement look like,  I think this is very fact dependent.  Some people live on much less than others.  Some people like you want a house paid for others like me could care less, My wife and I plan to rent in retirement while still holding our portfolio of properties (I think I should write a blog post about this) The short version is we plan to sign 6 month and year leases at various Caribbean islands and European cities, basically a life of travel, at a slow place, if we are liking a place we might stay a few years but in general we will mange our rentals via email and the like while traveling slowly around the world. This is not for everyone but its our plan, and we think it will work.

Do accomplish this we need have about 7K a month in cash flow after all expenses and a healthy reserve of cash and stock investments outside our retirement accounts.  (We plan to retire well before we can draw penalty free from our qualified funds).

Gordon Starr · Answer

Ok. This is really good stuff for me! I am hearing from several folks that the whole is not worth more than the sum of its parts (unless I luck into the right kind of buyer). Don't get me wrong, I don't really WANT to sell it all. Just the prospect of seeing a half million dollar check had me kind of thinking...

Also, these tenants were selected because they want to buy the house they are renting. Just need a little credit rehab to do it. That works out well for me if I can just be patient. I suppose they could be sold as turnkey investments too. I love the 1031 exchange idea. That would allow me to keep growing.

@Jeffrey holst thanks for reminding me that I could be setting my retirement prospects quite a bit higher. Yours sounds great, Good luck reaching that goal and have fun!

Gordon Starr · Answer

@Andrew Johnson These are all close to each other and both the condition of the buildings and the tenants are well above average for the area they are in. The neighborhood a pretty hot rental area and is seeing some fairly rapid stabilization/gentrification.

@Cody Evans The most valuable are my own home and the duplex, estimated at 100k each. The other five houses are nice too, but because they are in dayton, OH, they are probably only worth around 60 k each. So, the totals at half a million.

Cody Evans · Answer

@Gordon Starr

I am no expert but it sounds really risky. Also, if they can pay that much money in a lump sum then they are probably set for retirement anyway but I suppose someone would buy it. What would you charge for that portfolio?

What's your minimum retirement portfolio look like? sell it?

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