All Forum Posts by: David Charles Edwards

 I have the same setup as you. Don't overthink it. Maximum liability coverage and a good umbrella policy is going to take care of 99.9% of your needs and exposure. As far as your kids, that's easy too - set up a trust and move everything into the trust. 

Real estate is best served by holding it forever, at least the way our current tax system is designed. 

You have a relatively low value and rent per unit. Another path to consider is to sell them under a 1031 exchange and trade into higher-value real estate. Double value, double rent per tenant. Maybe finance 50-70% and hire PM.

I would stay in real estate, it is hedged against inflation and you can consume part of the cash flow instead of depleting equity, you can actually let the continue to grow. Personally we have long stopped buying "doors" - we want as much revenue with as few tenants as possible, so we buy higher-priced homes in the Milwaukee suburbs.

Last suggestion: look into DST's. You can 1031 into a DST and avoid taxes.

 I have the same setup as you. Don't overthink it. Maximum liability coverage and a good umbrella policy is going to take care of 99.9% of your needs and exposure. As far as your kids, that's easy too - set up a trust and move everything into the trust. 

Real estate is best served by holding it forever, at least the way our current tax system is designed. 

I'm not referring to a HELOC, since you normally don't get those on investment properties - I'm talking about straight up mortgages on the property. Read up on equity harvesting here and elsewhere, but yes you get the general idea in your last paragraph - cash out, let the PMs deal with the properties, rinse and repeat every 15 (or 20, or 30) years. Yes, you have to open up a little bit from the Dave Ramsey mindset which works great for people on the edge but not very well for investors or those with money.

Even at 8.5%, as long as everything gets paid for it's largely irrelevant. If rates fall significantly, refinance. Now if you don't need or want the extra income, then you can just leave thing as is, but then there's also little compelling reason to sell and take the tax hit. 

I think he is referring to a HELOC, but ultimately it is a way to avoid or defer capital gains taxes as the interest rate on the HELOC would be lower than your capital gains tax. You're getting the equity, 80-90% per property per loan, upfront and trading the capital gains for interest which is deductible.

 The logic is that you pay 7% interest, minus the tax benefit and appreciation, instead of 15-20% capital gains tax not to mention your depreciation recapture. Let's say theoretically they appreciate 3% annually in value. The tax savings is probably worth at least a point, maybe a little more. That makes your effective tax rate 2-3%, which should be offset by your rent increases. Thus, you pay no taxes, get to access the equity locked in the property, and maintain ownership of the property such that 15 years from now you can do it all over again. This is called equity harvesting. Using your numbers, if you did one a year let's just say, instead of net income of 85k after turning it over to a PM, you'd have net income of about 160k but only paying tax on 85k of it. Then if you don't need all that money to live, take what you harvest and put it somewhere else. 

Do what wealthy people do. They don't sell income producing assets unless they can replace it with a greater earner; they borrow against the asset at low rates and have it both ways - access to cash without paying taxes and interest deductions.

Congrats on early retirement. I would slowly sell the properties off.  Assuming they are all similarly priced, you'd be selling them at about $100K each.  How much appreciation have they seen?  Look at the capital gains (ie profit after expenses of buying and selling) and as your income will go down after you retire, how many can you sell at a time without jumping up a tax bracket?  then start selling the ones that have upcoming major repairs in the next 5-10 years or the ones that are a biggest pain to deal with/make the least amount of money from rent.

What about selling them all as contract for deeds? Then you can collect monthly checks and not deal with clogged toilets.