We're All Selling Our Rentals - Here's Why

0:00This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed Sponsored Jobs to find the right people with the right skills, fast. It's a simple way to make sure your listing is the first candidate to see. According to Indeed Data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today. With Indeed, get a $75 Sponsored Job Credit at Indeed.com slash podcast, Terms and Conditions Apply. Already, folks, you heard it here first. The real estate market is over. The three amigas who are the fans of one rental at a time are given up. We're checking out. We are all selling properties. All three of us are selling properties. And I think we've got to dig in and figure out why we are given up and selling properties. Matt, we're always going to go to who showed up first. Clearly, you're ready to give up on real estate. You can't build wealth anymore. It's impossible, and thus, you're selling properties, right?

1:00I'm giving up cash flowing and cash producing assets to start wholesaling. No, that's right. You're going to go get a job. Well, I mean, because if bald and ugly can get wholesaling done and actually make a living from that, then I've got a great shot because I've got a great head of hair and a beautiful beard. So, you know, yeah, it's just the dumbest thing I've ever heard. But, yes, I always strategically will have movement in the portfolio, always. So it's, you know, as I look at an asset and I say, how's it performing over the last, you know, year? How's it performing over the last three years? Is there a value in this particular case? This one has a significant value to my neighbor. So it makes the most sense to have them walk it. I think that they would have a pretty strong offer. But you know, essentially what I pitched him on was you have a business next door, I've got housing. What if you made it a perk because you have trouble finding help?

2:03What if you made that a perk and not make it $0, but even if you just had it a thousand or twelve hundred bucks instead of two thousand bucks and you have an employee and you also have a, it's a little bit of a retention situation. So yeah, absolutely, always looking through my portfolio to see, you know, what asset might not be performing as we wanted to. We try a bunch of different things and then if we still don't see it there, then we look to say, hey, does it make sense to move on or we're looking at like in this particular case, this unit, this asset performs pretty well. It's just a matter of, I think it's a better fit for the neighbor and I think that for me, I can do, I can go do what I did with this property and I can go make a bunch of money on doing another one. Yeah, I like it. Well, Dion, how about you, you know, you got the small and mighty portfolio, you, you know, you've never levered up. You never done cash out refives. What the hell are you doing selling a property? Clearly, you're giving up. Are you going to go be a wholesaler or maybe go back and get a job or what's going on? So a moment of honesty, like, like more raw emotion than I actually put into videos.

3:08Okay. This is one of the few times in my life I'm actually giving up. No sarcasm, like it sucks to say it. I'm giving up on my state. Yep. I grew up in the desert in California and joined the Marine Corps to get out of the desert and they put me in 29 palms in Saudi and Kuwait and everywhere where there's just dirt. Desert, desert, successful Dion, you did well. Right. So when I got out of the Marines, I looked at the country and I said, where does it rain? I looked at Maine and Washington and I've read too many Stephen King books and I thought, well, Washington wins. I don't want you to win, yeah. And I've lived here since I think 95 or 96 somewhere in there. So it was 30 years, 30 years. And I've loved every bit of it until the last, probably five. And I, my, in my last 10 years of working, I got really heavily involved in legislature. I, I testified four bills against bills, proposed legislature with different, um,

4:10people in, in Olympia here in our capital, fought bills. And dumb bills would take a couple of years. They'd get proposed. They wouldn't make it out of committee. The next year they'd come out of committee, but there would be an argument by the opposing side. The third year, they'd usually make it through because they knew what arguments to hit. And so that hit the transportation world I was working in and I watched it. But now I, I own real estate. We have soft on crime policies, not punishing theft. So we have stores closing down. You have what do they call it? Food, food deserts where they just don't have stores. We have free drugs, but not free insulin. We have, uh, property tax cap went from 1% to 3% on increase. We have rent control. We have tenant relocation fees. We had a capital gains tax pass. We had income tax that passed two nights ago. We have all of these things making this state not where I want to live. And the reason I said I'm actually giving up is, and most things in my life, I, I like to fight.

5:11I want to jump in. I want to be involved. And it's not worth it here because there are more crazy people than sane people in this entire state. So I won't be selling the whole portfolio, at least not initially, but I'm definitely going to be selling the ones that don't have any debt on them. Because the debt's too good of an asset to let go of on the ones that do. So yeah, I'm giving up on the state. I'm going to go check out some other ones. And there's still a week ago, I would have said a 20% chance. I'm going to stay, but now there's about a 5% chance I'm going to stay. In Washington, once I go look at these new markets, Tennessee looks like it's winning. Very cool, but it's not giving up on real estate because it's relocating asset ownership. Yeah. Yeah. And like the, like the other two of the three amigos, I just sold a property. Again, in the last decade or so, I have sold two, both of them for the same reasons, right? Kind of like what you were saying, Dean, I don't give up on a property easily. Every year, Olivia and I write around tax time, evaluate our portfolio.

6:15And we always look at the bottom, like what's causing us the most problem? What's like, is there an asset that's just being a problem? And for the last three years, and we just were in the midst of doing our taxes this year, this will be the fourth year. This particular property was the worst performer. And not only was it the worst performer financially, it's single-handedly in a portfolio of, you know, over 150 units. This freaking duplex was 80% of our problems. Yeah. 80% of the problems loses money for three years in a row now four. And by the way, it was, it was like 30% LTV. So we sold it. Yeah, it just closed last week. But like the, like the other three of us, we're not giving up. We're going to look to reposition that equity. I'm probably going to move it into a, so we didn't 1031, we'll go back to Matt, because I know that's his plan. We didn't 1031, because I didn't want the clock.

7:16However, I would likely will be buying a new construction, probably in Vegas or Henderson. And then I'll just do a cost segregation. It's kind of like a silent 1031. It's, it's going to be net even for me. So that's what I will likely be doing with those proceeds is, is throwing it into a new construction. But again, I never want to act like we don't sell, right? We sell for lots of reasons. You have an opportunity, Matt, where your neighbor might value the property more than market makes sense. Deon, you're actually selling your, your own rock because you're looking 95% chance to move the state. I sell because, you know, after three or four years, I only, I only beat my head for three or four years. Not, not one or two. But yeah, those are the reasons why we sell. So Matt, tell us, tell us your plan. What's your plan for this, this exit? Well, so no matter what, so I, so I would challenge your guy's idea or just offer to this very smart panel. An idea of always doing the 1031. The reason why I would always do a 1031 is because with my guys, it costs less than a thousand bucks to set it up.

8:23I've got 45 days to identify something. So I start the process when I put something on the market where I start working and then at that point. But then I've, so I've got maybe 90, maybe 110, maybe 120 days tops of being able to look and identify with something. And it cost me less than a thousand bucks. And if the, if the exchange fails, who cares? Doesn't matter. The exchange failed. Doesn't matter. I mean, the only thing it cost me was less than a thousand bucks. True. If it doesn't fail, well, then I just saved myself 20, 30% of fees and taxes and everything. Absolutely. Appreciation recapture. Yes. Capital gains, all that stuff. Yeah, all of it. But then on the other side of it as well, I, you know, if there's also a property that I've identified where I'm looking at something and saying, there's high potential that I'm going to sell this in the next six months. I'll go buy a property and do a reverse 10, reverse 10, have you done one of those successfully? I'm not done one.

9:24So I haven't, but I worked through it with somebody that did. It was very straightforward. You basically have set up an LLC. It's about 5,000 bucks to set it up. And then it's a monthly fee that they charge you to quote, unquote, manage it because you can't touch it. Okay. But the amount of savings. I mean, you know, if you really want a typical deal, you know, you're going to save 30 or 40 or 50,000 bucks in taxes. So you're still going to keep, and that's on a smaller deal. Right. You know, you're going to keep 25, 30,000 bucks pretty easily of that. But yeah, and for the only, the only downside is that that's usually not a newbie move because you have the money to buy the other one. Right. However, forgot it's like us, and for most people with more than, you know, five to seven assets, it's, it's a pretty viable option. Yeah, I would agree with Matt. I think doing a 1031 exchange is the right answer most of the time. I probably should have done one, but I didn't for whatever reason. Um, I guess I'm, I always knew I was going to do this new construction, and I didn't, I didn't want to be on a clock with these builders.

10:31Um, yeah, yeah, you're absolutely right. But again, the other thing is we have this cost segregation and bonus depreciation. So I brand the math, and I probably will actually come out slightly ahead, not doing a 1031. Yeah. Right. So there's that option too. And like DIY cost tag, like for those of you who want this code, 1000 lumber and number one, those are discount code. Use them, enjoy them. Um, but the cost of doing an online DIY cost is a fraction. Oh, it's $100. It's, it's hundreds of dollars to do it, but it's thousands of dollars less. Like I saw guys and they were like, Hey, I need this done before I need to do my taxes. Yep. So they were looking at it and saying, I'm going to, I got to wait six weeks and I got to spend six to eight thousand dollars to do a, uh, to do an actual cost tag. And now they're like, Hey, so I went to the website, fill out all the information and I got it within 48 hours. And it was everything that I needed to file with my taxes and it was, you know, a fourth of the price or a fifth of the price.

11:35So those things have saved me bit. I mean, when we, when I first found that four or five years ago, that saved me at least $30,000 in taxes. Yeah. There you go. Well, Dion, you're doing something a little different. The first thing you're selling is what we would call your owner occupied house. Again, it's a duplex. So 50% of that and you're going to get to benefit from that lovely tax loophole, uh, $250,000 tax free. Again, folks, I know people that that's all they do. They move into a great house. Or I should say they move into an ugly house in a great neighborhood, spend two years remodeling it, sell it. And then they walk away with half a million bucks tax free. Dion, you're doing it, man. What's, what's that like? Well, uh, Mindy Jensen from bigger pockets money, the bigger pockets money podcasts. It's been her strategy. Herner has been primarily invested in stocks, but they do the live in. Live in flip, yeah, live in flip. They live there more than two years. They do the full rehab. So they take the gains and then invest it. So it's a strategy. It's the first one I'm selling.

12:36Primarily, I'm going to be selling because it was a burr. It was, uh, the IRS 121 rules going to help. I won't be doing it. Going to help, going to help. It's going to help me. It's just, you know, probably, I don't know. The less than a hundred thousand dollars that I won't have to give the government, but it's not so significant amount of money. I have to say so. Learn a market and pick a market. So a 1031 isn't going to work for me this time, but I can't, and you can't 1031. You're on an occupied home. You could do 50% of it, but yeah, right. 50% because it's a duplex. But the one that I have that's paid off that I'll probably be selling. If I found a market where I want to redeploy my funds, that will definitely be a 1031. I will have it. I might be a reverse. We'll see how it goes when I get there. Uh, but there's another aspect of this too that I, I, I'm not considering yet, but I would say I could see it in the next, within the next decade. And it comes from the book, die with zero. Hmm.

13:37I don't have errors that want to take over rentals. So I don't mind that they're going to inherit money, right? Sure. But as I get older, there could come a time where I take a, every five years or so after 60, after 65, sell a property that has appreciated and had, had paid down and has, has a half a million dollars in equity sitting there and fund the next five years. I mean, I have the cash flow to survive and do whatever. But who knows, I might, I might start pruning the account as I get older. I haven't decided that whether it's going to be sell off properties. And the thing with all three of us selling properties, it gives the crash bros a nice straw man argument. Sure for them to go, even these guys are selling properties and they'll reframe it into an easier to attack argument to say that obviously a crash is coming.

14:40If we're getting out, we know we've been in for so long and you guys are so successful that we must know that that what what's coming without looking at any of the details of why we're doing it. Right chronology of where we're at in our investing. How much of an issue is the one you were selling? What are the tax benefits of the one that I'm selling? Like there's all of these things that won't come up in those arguments. Of course. So I like that we're doing a video saying even we're selling because it gives them a nice straw man. Yeah, let them. The people who watch our content will see the nuance. How much will you make, Dion? Off of this one. Yeah, off of this one. Three, 300 ish probably. Yeah, not a bad bird, 300 grand. Not a bad one. I wanted to make sure that was in the video so we can show what frauds they are when they clear it and then talk about it on top of living there for free, getting paid to live there while I'm there. This was from the end of last. This was this was nothing special from the MLS followed up 100 K under list price.

15:41Disrespectful offer. It's all it's all the stuff we talk about. Yeah, mine will do about 400. So good, good reason to sell. Yeah, pretty crazy. So again, folks, there are times that it makes sense to sell. I guess the other thing I want to talk about, Dion, you're talking about, you know, both, you and I are both older than Matt. Right. Matt's the baby of the group. And yeah, I know, I'll leave that alone. So that, remember my second book, 15 conversations with real estate millionaires that was that one chapter from, I want to wish I remembered her name. She was like 80 years old and she was selling her properties. That was the most meaningful chapter to me because that's something that I hope all of you get to think about. It's something, you know, Olivia and I are thinking about, I suspect. I really do suspect when I turn 60, 60 zero. We will be significantly tweaking our portfolio because Olivia is a little bit older than me.

16:45So when I turn 60, right, she's older than that. And we want to make sure we give our daughter, you know, the cleanest of the clean, because like your kids, Dion, she wants nothing to do with it. So we'll have to set it up and into your point. I think you brought this up years ago, we might do seller financing. So she just collects coupons. So, yeah, I mean, there's like, we're no longer starting our journey. We're a hell of a lot closer to the end than in the beginning. Is that fair, Matt? Yeah, I think so. And I think that, you know, I'm 48. Just a baby, just a baby. You know, I'm 48. And, you know, I've got younger kids. And so, yeah, we'll see over the next kind of 20 years what that looks like and how that transitions. You know, if so, sorry to interrupt it. Is it fair to say that amongst the three of us, you have the best chance of one of your kids picking up the portfolio and growing it to either of ours.

17:47Well, you guys, you guys had a lot of your success after they were already there. Yeah. They were already out of a house and the only thing that they saw because the sun works with the sun. Yeah. You know, which was like, I don't want to do that. That was awful. That's hard. Yeah, exactly. So we got all that stuff out of the way. So the kids just now see the benefit of it. You know, pulling the hat pull up the house and blow a boss. So we'll see, but, you know, the big thing for me is making sure that, you know, that they're ready and they want it. Like, I know Ashley doesn't want it. You know, I know she doesn't want to take care of rental properties. Yeah. But it pays so well and it lets you be a homeschooler. You know, so it kind of works out. You don't have to go to be a nurse. You do what you want. Yeah, exactly. Yeah. So if you want to go fill your time and do some nursing and help people. That's fine too. Do that a little bit. But that's the thing for us as we look and as we evaluate that. We'll see how the kids are. You know, if they all are. So let's see. My youngest is two. So 16 years from now. So I'll be. 64. I'll be 64 when my youngest is 18.

18:49I'll know at that point if. For sure. You know, any of those kids are going to look at it and go, yeah, sure. There'll be 18, 20, 22 and 24. So at that point, they'll look at it. Yeah. I can look at it and just go, yeah, you can't balance your own checkbook. You're not. Yeah, this is not going to work. It's not going to work. No, that's the only. That's the only benefit to having more. Yeah. Is we can downscale? I don't know if we'll have Dion's size portfolio by the time I get there. Or if I'll have a portfolio three exercise. I don't know. Sure. Probably not three exercise. Yeah. So the one warning map for your kids, having raised three. And my kids are five years apart. So I had unique experiences raising them at 14. Yeah. It will be the most challenging you ever experience. Yeah. Amen. Yeah. Yeah. Yeah. Yeah. Understand that some weird thing happens between 17 and 20 where they realize you're not retarded.

19:50But from 14, 15, you're retarded. Everything will be the opposite of whatever you want to do. And so I wouldn't give up there. But the cool thing with doing a lot of work with my hands is a door is a privilege. Yeah, you just take off the door. I do. I take doors off. That's not hard for me. My son was 14 when I took his door off. Nice. Yeah. We're removing the hinges. We learned that you can't slam the door and dad's face. One of our favorite conversations to come up. But our content so much focuses on people who are trying to buy rentals and grow wealth. We don't usually talk about the potential harvesting phase. Now coach Carson talks about it a little bit. But there's no reason for us to make complete videos stand alone on. Here's what it's like to have this many million dollars in equity that we can do. Anything we want with. Right. There's no benefit to those. But that is a part of the reality of what we end up with doing one rental at a time for more than the tech.

20:51Yeah. I agree. Yeah. Again, folks, there's lots of reasons to sell. We gave you three examples here. It is fair to say that we're all selling. It does happen. But again, we are all deploying that capital into what we know more assets. But again, yeah, as we get older, as you start to age out, there will be a harvesting time. I think that's a great frame of reference. I've certainly thought about that more the last five years and I did the first 25 years. Because I know it's coming, right? Father time's undefeated. But that makes it fun. Matt, where can people find you? Lumberjack landlord Thursday nights. 9 p.m. We just jump on and chop it up and answer your questions. Yeah. Lots of fun stuff. The jail should be done in the next couple of weeks. We're waiting for final inspections there. I've been hearing that for two months now, but okay. Oh, shit. Yeah. I know how you feel. The utility goes in and they cut the gas line. Just unbelievable.

21:51The level, like being a developer, it has its challenges. It's unique, unique challenges. I like what Derek that ADU guy does, but very often he's in kind of a foreign land, because he's not anywhere near a metropolis. Right. But some of these inspectors and some of the stuff, like the inspectors have been fine, but I mean, some of the vendors, it's just like utilities. It's just unconscionable. I am, you know, eight people staying around holding the shovel up. And I'm just looking at it, just going. Yeah. Yeah. Yeah. You're making bloodshed out of my eyeballs. So, yeah. But that's what we help people with in the course is obviously teaching all that fun stuff. Yeah. Damn, where can they find you? Pretty soon they can find me driving all over the US looking for a place to call on. Yes. Yes. And here on YouTube, do you on talk financial freedom livestream every Tuesday at 4 p.m. Pacific. Last night, Chesla was on and shared a list of things that she went through to reach financial freedom.

22:53I hope people will check that out. Yeah, go check it out. And folks in the school community, Dion did do his binder strategy on Sunday, all about 12 or 15 of you joined. If you want to watch it, I will get the video and load it in the next day or so so you can watch the replay. Guys, you're amazing. Take care. Drive safe, Dion. John.