It’s January 20th and I’m just now rolling out with my New Year’s resolution. Seems like procrastination, but to me it’s a strategy. See if I hit the gates with the rest of the masses and proclaim my goals on the first of January then inevitably right about now I end up realizing that my vows to hit the gym more frequently and to get my life more organized are unlikely to pay dividends. Resolutions (promises) made in the heady first days of the New Year are usually doomed by an excess of optimism – and sometimes by the remorse of a champagne headache.
So I get around to ticking off some to-do’s for the year towards the end of January, which ends up prompting me to set some boring but do-able goals that take me a few steps closer to where I’d like to be at the end of the year.
And this year’s goal is to start practicing what I preach in two areas:
- First: Don’t hoard equity in an investment, and
- Second: Don’t fall in love with a property.
These are good rules to live by, and ones I’ve talked about in the past in my writings. And they’re also two rules that I’ve violated in one particular investment. I own a townhouse loft in the Montrose district of Houston. Towering floor to ceiling windows. Acres of hardwood floors. Street lined with majestic live oaks. And, I happened to live there…and I happened to be living there when I met the woman who would later become my wife. Fond memories. So when we moved out I held on to it.
It hasn’t done badly, all things considered. Montrose is hopping, builders are building, and prices have started to tick up. So it’s time to get rid of it, fond though I might be of the property. Cashflow-wise the property does ok, but that’s because I bought it before the price ran up. Now it’s time to put that equity to work.
The graphic shows my plan: take the $130k in equity that’s sitting uselessly in this property and turn it into six multifamily units that will pay me $5,000 per month in rental income (vs. the $2,100 that the loft is generating). And do it through a 1031 deferred tax exchange that will allow me to avoid paying capital gains tax on the profit.
So now that I’ve publicly declared my resolution perhaps I’ll feel more compelled to stick to it. I know a lot of investors have equity squirreled away in properties that have run up in value. I’d love to have other investors join me in resolving to put that equity by pulling it out and investing it in bigger properties.
…and , I trust someone will call me out in December and see if I’ve stuck to my goal. We’ll see…
I'll write a post soon on the ins and outs of the 1031 exchange - the key to making this work.
