Client Interview
My conversation with Alex was brief. He’s someone I’ve known for some years and we have talked about what to do with his current assets. He’s a regular guy working a regular job for a major corporation.
Here’s a brief run down of how our conversation went.
Q & A
Alex’s Question: Won’t I be taxed for selling a rental property? What can I do about that?
My Answer: You can sell under a 1031 Exchange and defer taxes. You’ll avoid taxes for now if you continue to defer, you might avoid them all together.
Alex’s Question: Can I get something closer to home?
My Answer: As long as the property is considered “like-kind” you can buy almost anywhere. There are some exceptions that you’ll have to discuss with your tax accountant.
Alex’s Question: What can I do with what I have without selling?
My Answer: You can always keep it as liquid cash, which will usually not make much. You can also invest on another property. If it’s several units you’ll have much greater cash flow per months and that’ll enable you to grow your retirement. This way you’ll have cash reserves growing and equity building on two properties. When retirement comes around you won’t have to rely on Social Security.
Alex’s Question: If I sell should I buy another duplex?
My Answer: I wouldn’t. As an investment it makes more sense to grow it to 4 units while still staying in the residential class or you can go to 5 units and up, on the commercial side and have more cash flow. They both have good’s and bad’s that we can discuss later.
Alex’s Question: I like my tenant, if I sell the property, he’ll have to move.
My Answer: I can certainly understand having those thought. Especially if your tenant’s been good. What I would recommend is giving him the first opportunity to buy the home. There’s many options when it comes to this. This can be a good move for both of you. Allowing him to become an owner and you, at the same time, securing your retirement and beating out Social Security. A good tenant is hard to find but you need to consider your position and your families future. Having more income flow from your investments, for your retirement will ensures that you’re taken care of.
The above example is the potential advantage Alex would have if he used his liquid assets to purchase just one more investment property with 4 units. The amount of time for him to recover his cash investment is about 3.3 years. By then he would have all his investment back and a third property building equity.
With property appreciation he would be on his way to retire with well over a million dollars in assets and positive cash flow every month.
He can also opt to reinvest and duplicate the process in 3 years time. Which would continue to grow his portfolio and put him in a position where he can retire and continue to make about the same amount of money he makes while employed.
