Don, a 45-year old school vice principal bought as many rental properties as he could to fund his retirement. Retiring even sooner from his hectic day job with real estate would be ideal. However, after many years and several properties, unexpected maintenance costs and increased vacancies started eating up his families’ vacation budget and testing his wife’s patience. Early retirement seemed to be getting further and further away and Don was running out of ideas.

Investment Consultant and best selling Author of Everyday Real Estate Millionaires, Paul M. Hecht worked with Don and his wife to get back on track. “They had some good assets to work with, they made some good investment decisions and their personal incomes were strong. Yet they also had some issues that were dragging their whole portfolio down. When they had a large repair bill or prolonged vacancy, it had a significant impact on their daily lives. With a properly structured portfolio, this should be minimal and not affect their personal cashflow. It was really amplifying the problems,” say Paul. “Restructuring their current portfolio took some work, however the end result was well worth it.”
 
 
Couple, married, 2 kids, midlife
 
 
Vacancies and unexpected property maintenance costs eating up the family vacation fund and delaying their existing retirement plan.
 
 
Examine the existing portfolio, current retirement plan and make recommendations to get back on track.
 
A retirement plan that will work, family vacations again, enjoying time with family and friends and possible career change.
 
Household income $120K/yr, $90K in RRSP’s, $15K in savings, $30K LOC, $5K credit card debt.
 
Principal Residence: $500K value w/ $400K mrtg, cashflow = (-$,2,200)/mo 4 plex (out of town): $300K value w/ $250K mrtg, cashflow = $625/mo Duplex (out of town): $225K value w/ a $180K mrtg, cashflow = $325/mo Duplex (out of town): $190K value w/ a $170K mrtg, cashflow = $275/mo Single Family Rental (out of town): $180K value w/ a $120K mortgage, cashflow = (-$200/mo) Two building lots (out of country): $180K value together with an LOC of $160K, cashflow = (-$800)/mo
 
 
After looking at their current portfolio and objectives, we determined that the existing retirement strategy was strong but not sufficient enough to achieve their goals.  Therefore we made the following recommendations to put them on the right track.

First was to get out of the vacant building lot contracts. Building lots are speculative in nature with large negative cashflow. Investors often get caught in the excitement that a building lot in a warm climate in a tropical country is a good investment – it’s not. It can actually destroy a good portfolio. After several conversations and negotiations with the developer, our investor was able to get out of one contract completely by applying both deposits towards the second lot. Therefore he kept one lot without losing any money. Not ideal, but much better than before. This brought the negative cashflow on the lot from - $800/mo to -$300/mo.

Next was to either sell the single-family rental to free up capital and eliminate the negative cashflow. Or, turn it into a rent-to-own with positive cashflow. After several conversations with the existing tenants, the tenants were not in a position to start a rent- to-own. Therefore our investor sold the property. This provided $45K to pay off the personal credit card debt of $5K and provide a healthy reserve fund for the long-term rentals. With this reserve fund in place, they will not have to panic when a repair bill comes up or dip into the family vacation budget. Our investor bought his 4-plex and duplexes in an area where values are not expected to rise any time soon. However their objective was to buy high cashflow properties, pay them off and keep the cashflow for retirement. Therefore, we recommended changing the current property manager, which they did. This took care of the vacancy and maintenance issues. We also showed them how to pay off the mortgage on one of the rental properties ten years sooner than planned with a simple debt reduction strategy. The long-term rentals are back on the track and set to supplement their retirement income even sooner than originally planned. We also recommended adding an income suite to their principle residence in a part of their home that they weren’t really using. They were able to do so quite easily bringing in an extra $750/mo.

Leaving an existing job has its challenges and therefore we looked at several scenarios very carefully. Don had the option to take a 1-year paid leave from his current job. This would give him the time required to start a new venture. Rent-to-own was in line with his investment criteria, personality and preferred method of investing. We worked with Don through the first rent-to-own property to flush out the process. Then we helped him attract other investors to invest into his subsequent rent-to-own deals. He would have to replace his employment income within the 12-month period; otherwise he would be going back to a job he didn’t like.

We also reviewed their current RRSP portfolio and suggested some large changes to get those funds performing. Again, they took our advice and are now making a good rate of return. Don and his wife’s Real Estate Investment Portfolio (excluding their primary residence) showed $225/mo positive cashflow. With the new plan in place, their positive cashflow increased to $925/mo. With the extra $750/mo from the additional rental suite, they now have $1,675/mo or $20,100.00 every year in positive cashflow. With the reserve fund, vacancies eliminated, RRSP’s performing again, increased cashflow and re-structured portfolio, they are back on track.

Now they are able to relax, go on family vacations again, and Don is enjoying his new rent-to-own business and free time with family and friends. Within nine months, Don replaced his entire employment income with his rent-to-own business. He has no plans of going back to his old job and loves his new life.
 
 
 
 

 
 
 
 
 
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