Can you imagine, you bought a rental home 15 years ago, and now your 60 today.

 

Your hope was this rental would provide retirement income needed at age 65.

 

Sadly, it’s obvious there is no way this income is going to make enough of a difference for them.

 

15 years of dealing with the property, and now they are worried they may have made a mistake.

 

5 years away from retirement, they have to decide…..

 

Keep it, sell it, re-finance, or do something different, is it too late?

 

I hope you’re never put in this position, especially so close to retirement.

 

Let me tell you how it turns out….

 

But first, welcome, I’m Dan Thompson, I make sure that things like that don’t happen to you.

 

We have a proprietary process to protect your money, create tax-free growth and income, and at growth rates you’ve likely not seen before.

 

No use stressing and worrying about money, income, and retirement when you can create a predictable process to grow your wealth.

 

So, the other day I was in a casual conversation with this person in this situation with their rental.

 

My heart dropped. I mean, this was their dream, to be owners of rental real estate and make their millions, have all kinds of extra income at retirement, just like a lot of people think, right?

 

They thought that if they owned rentals at some point they spin off income that will provide a wonderful retirement.

 

Sadly, that’s not always the case…..let me explain…..

 

This couple bought a rental 15 years ago. At the time the home was 5 years old.

 

They originally paid 215,000 for the rental.

 

They put $40,000 down and carried a mortgage for the rest.

 

Over the years they put all the extra money into paying off the mortgage and it was recently paid off, 15 years later.

 

The rents have increased over the years, just a like they’d hope.

 

The current rental income is 2000 per month.

 

The home has appreciated in value to 300,000.

 

So, in the 15 years they increased their equity 85,000.

 

They put about 10,000 into repairs and maintenance over the years, like new carpet, some painting.

 

Their total investment with repairs is 225,000.

 

Now that the mortgage is paid, if we calculate their gross return on the amount invested it’s about 10.6%.

 

We get there by dividing 24000 (rents for the year) by 225,000.

 

After insurance and taxes their net income is about 8%.

 

There is a 50% rule of thumb that says over the life of rents, you’ll be able to keep and spend about 50% of your rental income.

 

This is after repairs, maintenance, insurance, and property taxes are paid through the years.

 

If that holds true, then the net return on investment is 5.3%.

 

If you divide 12000, (½ the rental income), by 225,000, amount invested we get 5.3%.

 

Now, they have 85,000 in equity appreciation too, that equates to about 3% per year growth over the past 15 years.

 

Finally, we want to know what the return is based on the current value of the home?

 

In other words, right now they have 300,000 tied up into the home when we include the equity appreciation. That is how much money they have in the home sitting in equity.

 

If we divide the annual rental income of 24,000 into 300,000 equity, we get 8%, gross, after taxes and insurance it falls to 6%.

 

And using the 50% rule of thumb when we divide 12,000 by 300,000, their net return on the entire home’s equity is 4%.

 

In other words, $300,000 is getting about a 4% net rate of return. Oh, this is before income taxes too.

 

Okay, so those are the parameters. They are essentially doing 4% on their money, plus some equity appreciation.

 

First question is this. Is all the works, management, dealing with renters, maintenance, repairs, late calls at night or on weekends with the hassle of a 4% return?

 

You might say, well they could turn it over to a management company, but that takes about 10% of their rental income. Now their real return drops even more.

 

The question they had what should they do at this point?

 

Should they sell?

 

Should they sell and buy another rental?

 

Should they refinance and pull some cash out?

 

Should they get the cash out and buy more properties?

 

Their overall goal is to create income so they can retire in the next 5 years and have the income they need or want.

 

So, we kind of worked backwards.

 

If they kept the rental and just lived off the income, lets again assume they can spend half, that means they have 300,000, the properties home value sending off 12,000 in income.

 

Or about 1000 per month.

 

Over the years it’s possible that the rents will go up, so maybe they’ll get more income incrementally over the years.

 

300,000 working for you and only providing 1,000 per month may not be adequate.

 

So, the next question is, should they sell?

 

When you apply the Buffet rules to investments – you never sell unless the story changes.

 

In other words, is the property doing what they want it to do or thught it would do.

 

Interesting, they seem to be happy with having the home. I don’t know how deep they get into their numbers and know their real return, but they seem to be happy with the outcome.

 

Buffet would simply ask, is the home doing what we expected it or wanted it to do?

 

I’d ask is the home keeping up with market conditions?

 

Is the investment is still producing the expected results?

 

Is the home in a good area for rentals and equity appreciation?

If those things are still true – then you don’t sell. The story and the reason the bought it seem to hold true still.

 

They were happy with the home, the rents, the appreciation, so then, there would be no reason to sell.

 

The only thing that’s wrong is it’s simply not going to produce adequate income that they need.

 

They didn’t do a lot of research to see if there was something better. They simply assumed since RE is a good investment overall, and other people wanted rentals, that it was the best thing for them to do as well.

 

The next question you have to ask if they did sell, what would they do with the money?

 

In other words, you don’t want to sell if the story hasn’t changed, and you never sell unless you have a better place for your money.

 

Sitting idly in cash won’t improve their situation.

 

The next thing they thought of was to sell this property and buy a more expensive piece of property that would produce a higher income.

 

In other words, maybe sell and put the 300k into a million-dollar property? Most likely commercial.

 

The mortgage would be 4300 per month. So, they’d have to have rents more than 4300 plus taxes, insurance, maintenance and repairs.

 

Then a couple of decades from now, when rents go up, and mortgage goes down, they might be able to have a greater income. They might be able to double their income.

 

The next idea is to leveraging their equity into buying other properties.

 

Let’s suppose they could get 225,000 out of the home by refinancing (about 80%).

 

They may not have adequate income or rents to assume this new mortgage by refinancing, but let’s say they do.

 

With the 225,000 they could use it to put 20% down on several homes.

 

If each home they bought was 300,000, they would need put 60,000 down for each home.

 

Let’s say they can get 4 homes – I know that’s not quite accurate, but maybe one of the homes was 250,000 or less.

 

Now, if they were getting the same rents, all at 2000 per month.

 

That’s 8000 per month.

 

However, we’ve got mortgages.

 

The cost of the mortgage will be about 1500, plus insurance, plus taxes for each home.

 

They may be lucky to break even – let’s say they do.

 

So, there is no additional income coming from these rentals for several years.

 

Then down the road maybe they clear 100 per home or 400 per month in 6 or 7 years.

 

Then maybe they get that to 300 per month 10 or 12 years.

 

Now they are into their retirement 10 or 12 years and finally have 1500 dollars more per month.

 

I think you know where this is going. It may be a good strategy long term, but right now they have more cash flow than that with the one home.

 

There is no way even 4 new homes are going to produce the income they need to enjoy their retirement. Particularly because they want to retire in 5 or less years.

 

So that does not seem to be a good option.

 

What’s left?

 

Not much –

 

What they finally came to the realization is that rentals may not have turned out to be the income producing asset that they thought it would be.

 

So, what should he do?

 

What I did was assume they sold the rental, after his capital gains tax, ends up with 285,000.

 

What would it look like if over the next 5 years he put that into a compounding and leverage program, using life insurance as his base to keep the money safe and guaranteed?

 

Using current economics, this could potentially produce ______ in annual income, all tax-free.

 

Now, here’s an interesting contrast.

 

15 years ago, this couple put 40,000 into this rental to purchase it.

 

What if instead he did the wealth squared method, again by compounding and leverage instead?

 

Let’s project out at the current economics and see what it could be.

 

His income would produce 50,000 annually, tax free.

 

If they wait until age 65, it would produce 60,000, tax-free, and a few short years later 70,000.

 

Oh, and when they pass on, at age 90, over 2 million would go to their heirs.

 

Wonder what the house will be worth in 30 more years?

 

So, they didn’t start 15 years ago, is it too late?

 

Well assuming they could sell the home and we could put to work their 300,000 ASAP.

 

Projections show about 45,000 in income about the time he wants to retires. Again, that’s tax-free income. 

 

More than double their current rental income and no way they could produce that kind of return from 300,000 in any other investment.

 

See the problem isn’t that they weren’t savers and they weren’t motivated to prepare for retirement.

 

It’s that they didn’t have many options in front of them.

 

Buy rentals, put it in the stock market, or stick in a savings account.

 

That is why we’ve got to give you this other alternative.

 

A way to save money safely, achieve above average returns, keep your money and your income tax-free, and create a substantially greater income than otherwise could be achieved with traditional financial planning methods.

 

So, don’t hesitate, take advantage of our free strategy session and see if it can help you too….

 

Remember you never get back yesterday – you don’t want to miss a day growing and compounding your money – that is the way to safely build your wealth

 

That’s about it….