Synergistic Strategies – 15 Years To A Magnificently Abundant Retirement –


We touched a bit last week on investing in real estate for retirement, especially as it relates to employing multiple strategies synergistically. My favorite Master Strategy is combining the following strategies:

  • Prudent leverage — 20-35%
  • BawldGuy Domino Strategy — knockin’ down one loan at a time till debt free
  • 1-4 flips a year — directing after tax profits to assist in domino destruction
  • EIULs — A completely independent & stand alone retirement income basket

The Master Strategy we’ll illustrate today will use all the above with the exception of flips. I’m assuming the vast majority of investors aren’t active flippers. The following is the ‘investor’ who’ll be implementing the Plan.

Our Investors

Rick is a sales exec for a west coast marketing firm, making $120,000 a year. His wife, Sheila, makes $70,000 as a special ed teacher. They live below their means, easily saving roughly $5-6,000 monthly after taxes. They have just under $300,000 in savings, CD’s, and the like. Sheila will retire with a healthy teacher’s pension. ‘Course, that assumes California’s economy doesn’t slide into the Pacific. It’ll be just north of $48,000 annually.

In addition to their savings, Rick has about $150,000 in his company’s 401k qualified plan. He’s now seriously considering bailing from that strategy. But that’s another post altogether. 🙂

Rick and Sheila are both 40. As many have admitted to me over the years, they’d both rather retire around 4:30 yesterday afternoon, but 15 years or sooner works too.

The Plan

Approximately $255,000 will be invested immediately in four Texas duplexes. The blended down payment/closing cost will be roughly 25.25%. This will leave them reserves of, give or take, $195,000. Everybody involved remains in their comfort zones with that figure.

The before/after tax cash flows from these units, combined, is about $20,600 yearly. History shows that figure as reliable. Still, Murphy’s alive, and knows where we all live. I tell clients to translate a small annual cash flow to mean ‘break even’ till empirical evidence proves otherwise. The only acceptable ’empirical’ evidence is bank deposit receipts.

Their loans are all 30 year fixed at 5.25% interest. (Today’s rate, and the rate at which these exact duplexes closed last Friday — just so ya know. 🙂 )

Rick ‘n Sheila have done their own internal numbers and decided they can add $3,000 of their $5-6,000 monthly savings to the plan — comfortably.

The strategy calls for that monthly commitment to be split 50/50 between real estate income property loan reduction and EIUL premiums.

We’ll examine the end game of this approach in one ‘fell swoop’ as Grandpa was fond of sayin’.


Half of Rick ‘n Sheila’s allotted $3,000 a month will go directly to their EIUL — Equity Indexed Universal Life. The optimal approach is to allow for a 3% annual increase in premium to allow for any inflation. Anywho, starting at 40, the idea is to retire by age 55. Here are their income options based upon when they decide to pull the ‘income trigger’ on the policy.

  • At 55 the tax free income would be a smidgeon over $4,000 monthly — $49,000 a year.
  • At 60 the tax free income would be about $6,500 a month — $78,000 yearly.
  • At 65 the tax free income would be a #4 combo plate over $10,400 monthly — $126,000 a year.

Who knows when they’ll decide to pull the trigger? Heck, even they won’t hazard a guess at this point, which is wise. Obviously, given the continuation of their exceptional good health, and sufficient income from other sources the first 10 years of retirement, waiting 10 years looks pretty dang enticing, as they’d still be just 65 years old. How ’bout you? 🙂

Income From Duplexes

The assumptions from Day 1 were twofold — no expectation whatsoever of appreciation. They fully expect the duplexes will be worth what they paid when they retire. The same goes for the Net Operating Income (NOI) — the plan assumes no increase for the life of the investment. Obviously, if either or both did benefit from increases they wouldn’t be disappointed. Since they’re buying at the relative (key word there) trough of the current cycle, it’s more likely than not both the value and NOI would remain unchanged if they didn’t rise. Still, your crystal ball is as reliable as mine. My OldSchool training simply won’t allow me to inject assumptions of increased value or NOI in any serious analysis.

The annual income from the duplexes would be about $72,000. Approximately 40% of that income would be tax sheltered for whatever remains of the 27.5 years of tax shelter remains from the day they closed escrow. For example, if they retired in 15 years, the first 12.5 years of their retirement the tax shelter would be in full force. After that? If they opted to wait the extra 10 years on the EIUL income, one might conclude an increase of over $10,000 in monthly tax free income would be sufficient salve for runnin’ out of tax shelter on the real estate side.

Filling In Some Blanks

Turns out using the BawldGuy Domino Strategy results in all four properties being free ‘n clear in 145 months — a month over 12 years. This leaves them with a whole buncha income they really don’t ‘need’ for the three years just before actual retirement. What to do?

Here’s a short, woefully incomplete list of options for the $216,000 (pretax) income.

  1. Buy a second home, possibly for cash.
  2. Start a second, separate EIUL with another 10-15 year plan, but front loaded with the three years of cash flow, without further premiums paid.
  3. Really cool boat, RV, both, or . . . ?
  4. Save it all and decide later.

The Final Tally

  • Income from duplexes — $6,000/mo — $72,000 a year.
  • EIUL monthly income — $4,000 immediately — $6,500 in five years — or over $10,000 in 10 years.  Put annually: $48,000$78,000$126,000.
  • After Tax Income — Roughly $8,800/mo — $105,600/yr — worst case if EIUL taken immediately upon retiring. Almost $11,500/mo — $138,000/yr if EIUL income taken five years after retiring. Or $15,000/mo — $180,000/yr if EIUL income triggered 10 years following retirement.

Almost forgotten in this ocean of numbers is Sheila’s pension, about $4,000 a month. But I don’t count that as it was separate from what we’re doing here. It’s still spendable though, isn’t it? Same goes for Rick’s Social Security, but that’s becoming more of a punch line, isn’t it?

Imagine how much better this illustration would’ve been if they’d been skillful flippers.

The Question to Ask Yourself

Forgetting the ‘how’ of your retirement plan, assuming you have one in place — will your retirement be in the six figure range — after tax — worst case? The answer I get from most folks calling me, is at first silence, then many qualifiers. “Assuming there aren’t any more losing years” or “As long as Social Security and my union’s pension is in existence at that point” or, my favorite, “AbsoFreakin’Lutely! I’ve acquired a dozen super cheap homes in a recession battered market with stoopid high cash flow. It’s in the bag!”

With rare exception, and I know some of those exceptions personally, and they’ll do well. The other 90%? The only thing ‘in the bag’ is their retirement — headin’ down the storm gutter towards the ocean.

For those interested in reading about EIULs from a bona fide, experienced expert, David Shafer will be posting on the subject in depth very soon. I’ll give a heads up on Facebook (Jeff Brown) and Twitter (BawldGuy).

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. You mention you’ve had a lot of people tell you they are certain of their retirement, as they’ve acquired a dozen or so homes with great cash flow. You then say that 90% of these people’s retirement is in the gutter. Can you please elaborate as to why this is?


  2. Jeff Brown

    Hey Brandon — When I first began umpiring back in the day, I eventually thought I knew what was what. I then got schooled by seriously solid, experienced umps and learned what good really was. 🙂

    Just cuz these investors were ‘certain’ didn’t mean their certainty was well founded. There are tons of folks who thought Las Vegas was a lock too. Most folks who’ve bought $20-60,000 homes in relatively decimated markets don’t do well. Why? They were chasing price while eschewing most other fundamentals.

    As we speak here, I just got off the phone with a very smart investor who chose Florida several years ago. He was fairly certain too. He’s now lookin’ for ways to Get Outa Dodge. 🙂

    Gravity is certain. Investors chasing price in slaughtered markets will find out what was really certain at their detriment. That said, I had coffee last week with a highly successful Michigan investor who understands the difference — that price isn’t the be all end all. Ironically, even though he’s doing well, his results are pedestrian compared to what he could do elsewhere. When presented with the facts, he immediately saw his new options.

    BawldGuy Axiom: Subjective certainty loses every time when confronted with empirical certainty.

    I too learned that valuable lesson the hard way. It still smarts when I remember. 🙂

    Make sense?

  3. Great, thought provoking post.

    The duplexes in TX could just as easily go bust, as did the Vegas market or the Florida market as you mentioned. However, Rick and Sheila seem like earnest, hardworking, fiscally responsible people and I really don’t want that to happen to them.

    I’m going to read up a bit more on your EIUL concept – your posts are the first I’ve heard of this product.

    Keep up the engaging blog!

  4. Jeff Brown

    MJB — No argument, TX could indeed have problems. If they do though, we’re all in a world of hurt. Their fundamentals are so strong, and on all levels, that we’d all be history if they went down.

    Do your research on EIULs, but include a conversation with David Shafer. Most so-called experts on the subject don’t know what I do, and compared to David, I know nothing. 🙂

    Have a good one.

  5. Kyle Koller on

    As usual, fantastic post. It gives me plenty of hope that I can retire within 20 years. Speaking of, hopefully I’ll be able to give you a call soon to talk about the next step in my Plan.

  6. Greg Bellefleur on

    Hi Jeff,

    As always, I enjoy your posts.

    Could you please elaborate on your comment about the Michigan investor; “highly successful Michigan investor who understands the difference — that price isn’t the be all end all. Ironically, even though he’s doing well, his results are pedestrian compared to what he could do elsewhere. When presented with the facts, he immediately saw his new options.”

    I am also a Michigan investor and have long wondered if it would make more sense to be investing in another market. Is that what you mean? Also what do you mean “…saw his new options”?

    Thanks, Greg

  7. Damon Jotham on

    Great Article!

    At one point you mention after tax cash flows of $20,600 for all 4 properties combined. But later state income of $72,000 at retirement from these properties. Is the difference due to appreciation of rents?

    Also you mention: Approximately 40% of that income would be tax sheltered for whatever remains of the 27.5 years of tax shelter remains from the day they closed escrow.

    Are you referring to the depreciation of the buildings? 40% seems high in that scenario.

    I am new to this so excuse my naivety. Thanks

  8. Thanks so much, Damon. These days I never, as in never ever include increases in NOI or value in my analysis. The difference in cash flow to which you allude, is first with debt, then with the debt paid off. Make sense?

    Great observation on the depreciation. In some markets the land can be valued at as little as 10%. This then allows for depreciation of 90% of the purchase price. The most conservative approach at that point would be roughly $8,200/yr in depreciation. If the cash flow, debt free, is about $18,400 or so, that means approximately 44.5% of that income would be sheltered. It’s actually sometimes more than 40%.

    If however, the land value was reasonably valued at 30% of the acquisition price, then about 35% would be sheltered when free and clear. A caveat here: Those numbers assume it was a standard purchase and not a part of a tax deferred exchange per Sec. 1031 of the IRC.

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