When to retire? Is there

Question

We learn about BRRRR and buying properties no money down. Brandon also teaches the formula to retire on a certain Passive income. The problem is if we are buying property after property with zero down all the money is in the form of equity and to a lesser extent cash flow. If the goal is to retire with cash flow. I have reached a level of units where I can say if the debt is all paid off then I can live comfortably retiring myself and my mother. However lots of debt remains. Would you try to start paying this debt down? Keep buying more properties to BRRRR or another strategy like seller financing?
Interested to hear peoples take. Or if anyone has recommendation for resources on the later stages of real estate investment and retirement planning/implementation. My properties are in Ontario for context.

Chris Baxter · Answer

@Yousef Reda there are lots of different exit / retirement strategies in REI.  Are you concerned only about you and your mother, or do you want a legacy for your family?  I am personally working towards replacing all my active business income with cash flow (passive), without liquidating.  I use my active business income (and value-add through BRRR) to acquire new properties, so I am still in growth mode. I could retire now by liquidating everything, but would likely evaporate our wealth with an early retirement. I would rather keep building to pass wealth on to the next generation, even if this means a few more year of work for me.

Melanie Dupuis · Answer

@Yousef Reda The solution is simple...only buy properties that still cashflow at 100% financed. Then when you pay back the 2nd mortgage with a refinance, you will continue to cashflow even higher. Do not listen to anyone who says this cannot be done! We own over 200 apartments and used none of our own money and cashfow very high. This allowed us to quit our careers in our 30's. Also do not pay off your mortgage! Keep pulling out as much equity as possible from every single property to buy more properties. When you have a buiding completely paid off, you now have less expenses, and now your accountant has less tools to make that income disappear. You will eventually just end up paying a lot of taxes....Debt is king with real estate if done properly ;)

Account Closed · Answer

@Yousef Reda

Keep in mind, if you are self managing, 2x the properties may very well mean 2x the time input required whether you are working or not. And, no verifiable income will make it extremely difficult to qualify for mortgages, you may be stuck signing whatever the bank sends you for renewal (which is usually a garbage offer ~2% above the going rate). So costs may increase at retirement too.

Jeff Stein · Answer

@Yousef Reda

My recommendation would be to start at the end of the process and work backwards. What are your goals in life and retirement?

Sunil Garg · Answer

Selling to your own holding company / corporation can have certain advantages.1. Better protection in case you get sued.  Personal assets won’t be touched.  Although in Canada we are not as litigious.

2. You get taxed at lower rate on your income although passive income is being targeted by the Trudeau government.3. You can avoid capital gains on recently acquired properties if they have not accrued much value.  You need to be careful with your mortgage as well.  Some banks (NBC) allow you to transfer without having to break the mortgage and apply for a new mortgage with penalty (TD).4. If the ownership of the homes is the same as the ownership of the LLC then you can consider a roll over instead and still get the tax advantage.  I am working on this with my fiscalist at the moment so can’t give more insight at this point.Hope it helps.

SG

Theresa Harris · Answer

that is one of the problems of having your properties mortgaged to the max.  You effectively took your cash flow out up front and used it to buy other properties-which is fine, but now they won't cash flow.  As you get closer to retirement, think about what your options are.  Even if you sell them, you won't get that much money back as most will go to paying off the mortgage.

As you don't plan on buying more properties, I would let stop refinancing them (guessing rates are already low as you would have renewed the mortgages the last 5 years-that's how it works in Canada) and let the tenants' rents start paying down the mortgage. Then you will have more equity in the home, should you need money and want to sell.

Chris Baxter · Answer

@Yousef Reda selling your property you your holding company will likely trigger a capital gain. Best to speak to your accountant to get clarity on the most tax efficient strategy for your own personal situation.

Yousef Reda · Answer

Thanks everyone.

@Chris Baxter Thanks for the information. Im not planning to sell any of my properties to anyone. Im wondering maybe the best route is selling my properties to my holding company (Corporation in Canada) that way I can pay it down with my primary income at a tax advantaged way. Rather then buying more properties. This way I can pay down debt and increase cash flow. I probably need to look at Canadian Tax Real estate resources to help understand this more.

@Roy Cleeves Thanks also. I am trying to build cashflow and not really interested in getting equity pay outs.

Im starting to think im answering my own question. I will probably talk to my accountant and see if maybe the best strategy is moving my personal properties to my holding company that way I can pay off the debt way faster (Canadian tax manuever, in USA you guys are lucky to have that 1031 exchange which maybe going away under Biden administration)

Roy Cleeves · Answer

Hi @Yousef Reda

I think it is best to continue to acquire if you can.  You can always sell something when you need the money.

The Brrr strategy does allow you to continue to grow by getting your cash down payment back.

Cashflow will result as your rents increase over time and as your debt decreases or gets refinanced at lower interest rates.

And as @Chris Baxter said, better to keep working for awhile longer and build some generational wealth.

I hope that helps!

Lynnette E. · Answer

I own my property clear so I have great cash flow, just not as many properties.  That also reduces the amount I need to spend on maintenance as I do not have as many properties.  The money that others put towards mortgage payments is my cash flow.  If I choose to I can use the cash flow to buy another property or two in cash each year.  Or I can use the cash flow to enjoy life.

Maybe you can start using your cash flow to pay off your properties.  Take the property with the highest interest rate and put your current cash flow from all properties towards paying down the principle on that loan.  Once that loan is paid off you will have even more money (what was used to pay that loan's payment) to pay off the property with the next highest interest rate.  Keep doing that until they are all paid off and you will have great cash flow.

When to retire? Is there

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