mid life property portfolio evaluation

[Mike Savage]

So after a recent call w our amazing accountant he said something that hit me hard. he said after 40 years w his clients he's observed that its easy to get into real estate investing and much harder to exit real estate investing. In our case i'm very concerned w high transaction costs if we sell. for our smallest property he did some quick calculations and came up with approx. $150k hit on a $550k sale price. Currently We own 3 doors. 2 SFH plus a condo all in Multnomah County. We have been debating selling or holding on to them for years. All 3 properties are cash flowing at a low single digit rate but have nice appreciation and 10 years left on loan. I manage all properties myself plus I'm HOA president at the 5 unit condo. Some situational pressures are a somewhat wobbly rental market due to economic conditions (Nike/Intel layoffs). we've had some vacancies in the past few years. that never happened in 20 years of renting. rent prices have not been keeping up with increase in property taxes which diminishes our cash flow. Tenant laws making it much more complicated to be a property owner in Multnomah county. I Would love to hear what others are thinking these days. Looking for an intelligent strategy for moving forward. Feeling a bit stuck.

[Mike Savage]

Quote from @Michael Smythe:

@Mike Savage only you can make the decision that is best for you, but here are some thought-provoking (hopefully) questions:

How many rentals does your Accountant own?

What is your Accountant basing their advice on?
-Have learned the hard way to NOT blindly trust ANY professional! Even they, "don't know what they don't know"!

You've got assets you want to pass on to heirs, but do you have a business to pass on to them?
Assets alone don't do much for generational wealth - how many heirs just sell the assets they inherit?

Why haven't you built a business?

Yes, no PMC can manage your properties like you, but why do they have to?

Compared to your last 3 years of average NET portfolio income, what percentage would be acceptable to you if a PMC handled +90% of the business?
- all you would do is "manage the manager", which you could do from anywhere you have internet access.

 o.k.  some great points and questions i will respond to.  yes I guess our son could inherit and then sell right away but we'd be gone and if that is best suited for his lifestyle so be it. I personally would like to create multi generational wealth ie his children's children and I will have that conversation but not until he launches and gets his own life going.   i guess my preferred inheritance option would be to have cash flowing property checks in the mailbox every month that could supplement any other income and that budget could fund everything from passion projects to tuition to memory making travel experiences. 

I do have a small IT business but it gotten whalloped the last 10 years with Covid kinda taking it down hard.  I am self made with street corner knowledge.  where I failed in my business is not having a 1, 5, 10 yr plan and failing to see the assorted train wrecks coming down the track.  however i'm not sad and had a great run and probably could rinse and repeat if i could free up time and mindspace which is not unlikely in about 2 years.  in the meantime we would like to live overseas again and maybe start developing a new business plan from there.  I can't remember where I once read something like work on your business not in your business.  i think it's time I meditate on what it is we are really looking for at this time in our lives.  (empty nest)  i'm very good at creating spaces.  an architect neighbor suggested I become a GC but not sure i want those client headaches.  I think part of a design/build company could be cool.  i dunno.  just trying to avoid the race to the bottom.  

[John McKee]

Let me take a stab at this math.  Feel free to chime in.

Sales price of 550,000, capital gain of $500,000 after fees (commissions, intermediary, DST Fees, closing costs etc.). $500,000 x 20% capital gain tax is $100,000 that you owe.

1) put remaining $400,000 net profit into a mortgage note of 12% which gives you cash flow of $48,000 a year.

2) Take your $500,000 and roll it over to a DST earning 5%. Your cash flow is: $25,000 ($23,000 grand less than option 1. which mean it will only take a little over 4 years to offset your capital gain.