the-abcs-of-real-estate-investing-ken LifeFeeling

What to Do with Your Money
If you do sell your property, you need a plan for what to do with your money. I have a
friend who had a small property in San Diego. Although the property was not listed for sale,
he was approached by a prospective buyer. They made an offer for a sum of money way
higher than what he paid for the property. He took the deal and decided to sell.
Unfortunately at the time, the San Diego apartment market was really hot and he could not
find another deal that was worthy of reinvesting his money. Had he known that at the time,
he might have thought twice about taking the offer. To avoid a large tax bill on his huge
capital gain, he was forced to look in other markets in other cities and states to reinvest his
money.
Now he is out of his comfort zone. He has had to quickly assemble a team, learn another
market, actually multiple markets, visit numerous potential properties, all while working at
another job. This deal threw his life into total upheaval. And the clock was ticking. On
exchanges such as this, you have a limited amount of time to reinvest the money and
declare it tax-free. He had to cut corners on things like assembling his team and even due
diligence. He barreled headlong into a property he didn’t know enough about, just to avoid
the big tax bite. It was the wrong property, bought too high and with a lot of deferred
maintenance. It was a bad deal, but one he had little choice but to take.
My point is not to slam the practices of this investor, but to warn future sellers that if
you don’t have a plan for your capital gain, you should not sell the property. It is easy to be
lured by the cash. If you are truly a property investor, you will likely have irons in the fire
and have some properties on the horizon. That’s great. But if you are a passive investor with
no properties in process, you may have to scramble and be left with a bad investment or a
large tax liability.
I would never sell a property without having at least three or four deals in the works for
which I could use the money to reinvest. That’s the only way to prevent a hefty tax bill and
avoid making foolish decisions that will cost you money in both the short and long run.
A Final Word
There will come a day when the properties my partner and I own will be sold. But until
that day, the cash flow generated from them, and their appreciation in value, ensures that we
have the ability to do the things we love today, and in the future. There is a freedom that
comes with that knowledge. It was what I was searching for when I set my own personal
goal of financial freedom. Little did I know that the freedom would go far beyond the
dollars. Freedom to spend time with my family. Freedom to do the things that I want to do.
Freedom to share my experiences with others. Property investing particularly buying and
holding property started out as a means to an end. But it has become something much more.
It is an end in itself and a thrilling journey.