Today I would like to fully introduce you to a real estate investor client of mine even though modesty on his part has restricted me giving you his full name. I have worked for Al S. for a little longer than a year now.
When you read his answers to these real estate investing questions please notice that his whole economic picture today is more comfortable than most people’s. And he didn’t own hundreds of income properties. In fact, he owned fewer than ten rental homes.
Q: How long have you been investing in real estate? 50 years.
Q: What made you purchase your first house? Upon being discharged from Air Force after the Korean War I got married and used the GI Bill to buy a duplex and lived in one side. The tenant advised me that I should not buy the place because it was a dump and not worth the price they were asking. Well, he bought the dump for me with his rent payments and I moved up to a nicer dump while he remained living there paying rent for many more years.
Q: Did you know what you were doing or did you just jump in? Owning rental income property runs in my family. My dad supplemented his seasonal job with income from rental property income. My brother and sister also became involved in rental properties. Both of them have been more aggressive investors than I. My sister owned a city block of rentals in New York and my brother owned several nice Westchester New York properties. Both have since divested their holdings to spend more time traveling.I am also in the process of doing the same.
Q: What has been your biggest headache over the years? Not buying more properties. Like the saying goes “Get lots when your young”.
Q: Were there months you were worried you would not have enough money? Fortunately by picking good properties and selecting good tenants the cash flow was usually enough to cover expenses. There was one occasion when a property I purchase with owner financing at 7% had a 5 year balloon payment due. Refinancing rates had climbed to 19 % at the time the balloon payment was due. The rental income would not support such an interest rate so my offer was to let the former owner take the property back. He thought that he would prefer to continue collecting 7% for another 5 years as better deal for both of us. When the next balloon date arrived, interest rates returned to a reasonable level allowing me to refinance through a bank.
Q: Name your biggest reward over the years of your investing. Good cash flow; good appreciation; good tax shelter to save income taxes on my day job ; plus providing a goods service to good people in need of a good place to live.
Q: Did you realize what your income properties would be worth some day? There was always the fear that property values might drop as well as the wish that they would go up, up and away. Just like any other risk-reward adventure there is excitement in taking the risk. Real Estate has been one of my better investments from both a financial as well as a feeling of personal accomplishment. My other investments, such as stocks, have had some financial results but lacked the personal feeling of accomplishment because the results were the actions of others. Owning,managing and controlling an entire investment, like a real estate investment, is an entrepreneurial adventure.
Q: You chose to just liquidate your properties. Why did you decide to not utilize the IRC 1031 tax deferred exchange? 1031 exchanges are a good tool to use to make full utilization of sales proceeds by delaying the tax consequences to a later date. But like the saying goes “you can pay Uncle Sam now or pay uncle Sam later, but you will pay Uncle Sam.” I chose to pay Uncle Sam now and taking what was left over to enjoy traveling and eating good meals while I am young enough to do so.