All Forum Posts by: Kevin McGuire

As with you, my goal is passive income in retirement and I’m putting that in place now, ahead of time. I’ve used leverage to acquire a number of properties and I ensure they all at least break even after expenses and mortgage. That way the business is sustainable, I don’t have to constantly feed my income into it and thus I can stop working at any time. That’s how I manage the risk of leverage. 

Having a clear exit strategy, or strategies (even better) is another part of risk mitigation. You don’t want to have to sell in a down market and you may not have the runway to wait for it to bounce back. Cash out refinance is one route: you can take equity out to live off without having to sell. And, no income tax :)

Finally, while it’s counter intuitive, owning more properties reduces risk: you can put in place sustainable processes like having a property manager, and it spreads risk of tenancy and repairs — you can ride out the cost of one of them being empty, and the furnace in all won’t need to be replaced at the same time. Thus for me, I figured if I was going to own one RI property I might as well own ten (figuratively speaking), and I would build it up now while I had the income to qualify for the mortgages and the time to build equity. Most of my portfolio was acquired in the last two years. 

A thing I’ve not done but I think has merit for risk mitigation is to own a variety of kinds of properties and own them in more than one economic region. 

Happy investing!

@Mike Lattier Hi Mike, congratulations to you and your wife. I didn't start my RI efforts until early 50s and now have seven SFH's and a fourplex (not to boast, just saying you can move fast when you're clear on your goal). I agree with the great comments already left here.

I think your advantage is a lifetime of experience on defining goals and executing against them in a methodical way. The advise on not being overly leveraged is a sensible one although l view the underlining message as being around risk mitigation and understanding the time horizon you have to recover. As such although leveraged my investments have been modest return for higher stability, that’s how I manage risk. You also need to factor RI into your larger financial picture again for risk mitigation through diversification.

One thing I wondered about in your story was around AirBnB. My advice is to separate how you want to enjoy your leisure time from how you want to invest. To my understanding, AirBnB can produce great returns but it has two problems. First, it’s discretionary spending so in a downturn (which in time will happen, they just do) your returns will suffer, you’ll need to factor that in and be able to ride out the subpar cash flow. Second, they’re a lot of work. If you’re into it that’s cool but I think a perk of getting older is clarity on how you want to spend your time combined with an ability to pay someone to do the rest :) Can you run it while sitting on a beach in Cancun? If not, then find out how to answer “yes”.

@Aidan Mulligan In addition to pit bulls because they might be dangerous, I ban short people because they sometimes fail to clean the tops of the cupboards, tall people because they sometimes don’t notice the dirty floors, fat people because they can be hard on the carpets, and skinny people because, well, I’ve put on a few pounds lately and I just don’t want that kind of thing around me.

Kevin

(previous owner of two Rottweiler rescues, current owner of rott/pit mix rescue).

@Paul Allen Thanks for that. I seem to have struck a nerve in this post! I didn’t intend it as a bashing of the financial planning industry; while I have my own gripes with it as an industry, that wasn’t my intent. Where the industry as a whole suffers is two fold: it’s not clear whose interest they represent, and it’s not clear the value they bring.

Some in this post have asked why I have a FA in the first place. I have a complex financial picture with RRSPs in Canada, RI in Canada, IRA/401k and other stocks/bonds in the US, vacation rental US,.. while I have confidence in my ability I also recognize that there are limits to my knowledge and speed at which I can learn (e.g. tax implications in two countries, ugh!). I think that all domains have experts whose counsel is valuable, and in this case I'm willing to pay for the counsel of others to round that out, act as a sounding board. What I look for is not someone to "manage my investments" but to clarify my goals, work with me to develop a strategy, and devise a plan to execute against that strategy.

RI is part of my strategy. Frankly I think it should be part of more people’s, but I’m preaching to the converted here. Thus for me a FA needs to be able to factor in RI in order to provide a wholistic approach. If a FA’s scope is limited to those products they can sell, then there’s a number of problems there. My current FA gets paid a flat fee based on assets under management, does not steer me towards in-house products, and I believe is well intended. But, limited, either in education, training, or through policy or law of what he can advise on. The new firm I am investigating has a more comprehensive team based service which includes for example tax and legal in-house counsel, but the advisor I spoke to didn’t have the depth of RI knowledge I wanted. Maybe what I seek is a unicorn. Thus my question here: is this typical, do you just have to educate them?

@Thomas S. Agree. I find cash flow is often the wrong question. I first look at cap rate to decide if I like the investment. Then I consider DP, financing, and their affect on cash flow as a separate issue which affects my ability to afford the deal. If you're tight on cash then CoC matters but it doesn't measure the value of the deal, just the financial arrangement you came to.

@Account Closed I’ve been accused of that :) 

Yes I think there's an educational aspect. As for why I go with one, I've been asking myself the same question! My thinking has shifted to index funds in a well constructed diversified portfolio, which I can do myself and save the fee. The last company I interviewed though takes a holistic approach and looks at tax efficiency, insurance, POA, will, and have in house legal and accounting. I like it as a team approach, I think that provides the value add, is set up purely to the customer's benefit.

Thanks all!

Hi BP community,

It’s taken awhile to get my financial planner to understand what I’m doing with Real Estate Investing. I interviewed a new one from a well regarded independent boutique firm and again he didn’t quite get it. I don’t need them to help me run the RI business but I do need them to factor it in properly to my overall financial picture and retirement planning.

For my first advisor, he only looked at the value of the equity, I got him to think of it as asset, liability, income and costs. Moving to Quickbooks Online and producing a balance sheet and P&L helped a lot, it then looks like any other business.

My new guy looked at the cash flow as not contributing to retirement income until the mortgages are paid off (my net with mortgages is trivial). But then I explain that I can cash out refinance, take equity out, and not pay income tax. Boom. They don’t know how to model that. Or, sell property to clear off the other mortgages.

I also had to explain to each the whole purpose of doing this: income generation without drawing down the capital producing the income.

I think the basic problem is that financial advisors are trained to think of stocks, bonds, etc. Maybe I need to talk about RI in those terms: property = stock, cap rate = yield, mortgage = margin loan.

I think another problem is the guardrails in place, certainly in the case of the first advisor, on what the firm allows them to advise on.

What are folks’ experience here in working with financial planners? Is this just typical? How can I help them to help me?

Hi Michael, it's because locations are at the bill/invoice level while as classes are at the line item level. If you get an expense which spans multiple properties (e.g. my property manager's monthly bill) you can't assign it to the multiple locations since that single QBO expense/bill can only be assigned a single location. The place you can assign locations to line items is in ledger entries, which is a pain, they're not easy to work with and I find don't have good visibility and each month I have to remember how I did it. Otherwise either works ok and I've seen recommendations for each. I went with locations with the intention of keeping classes for some other use, which so far hasn't presented itself. Locations per property are good 99% of the time, I'm just irritated over the 1%

@Cynthia DeLuca I also have a class per property, not per door, agree! I was only saying I don't have your scale so maybe I'm solving an easier problem; I have 8 properties, 31 is impressive, congrats :)

I've only scanned this thread but it seems you know what you're doing and are set up properly with classes in QBO, so I'm not clear on what problem is left for you to solve. It seems to be around the PO handling. To @Gita_Faust 's comments maybe it's an import from your tenant software, trying to get it and QBO to play nice together. In my limited experience the bank data is for reconciling against the data you've already modeled in QBO through invoices, bills, and recurring transactions to automate their production, generally speaking the bank data isn't a source for that info, that's at least the mind shift I had to go through.

@Cynthia DeLuca I use QBO, locations per property (but wish I had used classes instead), create recurring invoices for rent, bills for expenses and then match against bank transactions that are pullled in. I don’t use tenant software, it’s all in QBO. I only have 11 doors. I spend maybe an hour a week on it; I find once you have it set up a natural repeatable process emerges.