This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design the best lives. Hey guys, Sharon from digital nomad quest, and today we’re gonna go over why I don’t sell my real estate. Now, if you guys are new to this channel, welcome. I’m all about teaching how to build passive income, become financially free and design your best lives. So if you guys are interested in that, make sure to subscribe and hit the bell button to be notified of my latest videos. So on this channel, you’ve probably seen I bought a bunch of these different properties, I’ve actually bought a lot of cheap properties and fix them up. But I’m actually still keeping them in renting them out to tenants. Now a lot of people do buy these cheap properties and fix them up and then flip them right, they’re usually selling them right away and getting a quick profit. And I’m actually keeping them and holding on to them and getting that cash flow. And a lot of people might assume that I’m flipping properties, but no, I’ve actually never sold a property. So far, I’ve been keeping all of my rentals. And I’m going to talk about why I’ve been holding on to these rentals. And why I haven’t sold properties just yet. Now first is obvious. It’s about the cash flow. I’m all about passive income. Ever since I started building my online businesses investing and things like that. I’ve always been about cash flow when I was little I’d play Monopoly. And I would just love accruing all these properties where I could pick up cashflow over and over again, because what cash flow does is buys me time and freedom, I could not be working and still be making cash flow every single month. And that’s my goal. I really like that because it gives me the sense of security, I get consistent income from my rental properties. And I really like that. So I’m getting up to about 13 units. Now combined with my boyfriend, we basically have around 20 units now. And each of these different properties are their cash flowing us every single month. And it buys us just this freedom. And it allows us not to feel stuck at a job we hate or something like that we are only doing things that we love that are in line with what we care about so that we make sure that we’re living a life true to ourselves. And that’s only possible when we have that cash flow that’s giving us back consistent income that covers our expenses. So we never need to worry now, how is that cash flow created from those rental properties? Right. So basically, we’re getting rental income from each of these properties. And they’re paying off the mortgage, the property taxes, the insurance, property management fees, and possible expenses for repairs and vacancies. They will cover all these things and give us cash flow on top of it. We’re making sure that the properties we are purchasing, they’re doing those things that we actually get cashflow on top of all those expenses, some of the properties, we actually bought all cash. So there is no mortgage payment that we need to make on those and for those properties are getting even more cashflow, because we don’t need to pay off some debt. So hopefully that makes sense. Why will you want to keep these properties, they’re always consistently giving us cash flow every single month. Number two is appreciation. So when you are flipping these properties right away, there might be some appreciation from the market. But mainly you are getting appreciation from the force appreciation from basically improving the property and increasing the value that way, right? If you get this fixer upper, that is super rundown, people aren’t going to pay top dollar for that unless it’s super fixed up and is really nice, right? Once you fix that up, you’re increasing the property value making it rent ready for people, that’s going to make it so that the price of the property is higher than it was before. Yes, you can make money from that. But you can also make money from just holding the property long term, they say average appreciation might be three to 5%, year after year. So your property values are going to be going up and up. And especially if you are targeting markets that have more potential for appreciation, you might be getting higher and higher percentages. So for example, I invested in a property when I was 22, in Antioch, California, and it’s actually over doubled in value. So if I sold that property, now, I would make multiple six figures profit on that property because it’s appreciated so much. If I didn’t wait that long, and I just flipped it after some repair, I probably wouldn’t have made much money on it. So what I like is I’ve picked markets in which there should be good appreciation for these homes. And if I just hold it long term, it’s likely that the value of the home is going to appreciate a lot over time. So my thinking is I want to hold on to these properties for a very long time just keep getting money from them. Because I’ve already fixed it up to a point where I have gotten the property managers in place. I’ve gotten the tenants in place, and I’m getting regular cash flow from these properties. And the property is appreciating over time. So like why would I sell it when I’ve already done all this work to make a cash flow for me and allow it to appreciate for me, I don’t feel the need to sell it off and make money right away.
I want to emphasize that a lot of my goal is not just to increase my nest egg a lot of my goal is actually to increase my passive income have numbers, that’s probably one of my main goals financially. Number three is debt pay down. So what I mean by that is if I have a mortgage on certain homes, the rental income I’m getting is also paying off those mortgages every single month. So not only am I getting cash flow, I’m actually paying down my debt over time. So I’m actually getting more equity through paying down the principal of those loans from getting that rental income from the tenants. So don’t forget that debt pay down when you are thinking about the benefits of real estate is not just the cash flow, because if you’re getting a loan on those properties, you’re also paying down that debt every single month. Okay, number four is a tax benefit. It’s called depreciation. So even though your property is going up in value over time, the government is basically saying that the useful life of residential properties is 27.5 years. And to help you out, the government’s actually letting you deduct one over 27.5 of the building’s value every single year from your taxes. So say you bought a home for $200,000. And the building is worth $150,000, in the land is worth $50,000, you can basically deduct $150,000 divided by 27.5, which equals $5,454.54, for the next 27.5 years on your taxes from your real estate investment profits, so with this awesome tax benefit, you’re actually not needing to pay as much in taxes as you normally would have to because the government is helping you out this way. So these four benefits are already amazing. And a fifth benefit is that if you flip homes all the time you’re selling off your homes, you’re going to pay capital gains tax, right. So the fifth benefit is you’re essentially avoiding paying those capital gains taxes because you’re not selling those properties. Basically, with capital gains taxes, if you’re flipping properties, you’re going to pay capital gains taxes on the profits you get from selling a property at a higher value, you’re going to have to pay the capital gains taxes on the difference. So that’s actually going to be a lot in taxes, because you’re not selling the home, you don’t need to pay those capital gains taxes, what you can do, instead, you can actually do 1031 exchanges, if you do want to sell and then get something better. The 1031 Exchange lets you defer your capital gains taxes on your rental property if you’re buying another lifetime property like another rental property. So let’s say you bought a property $100,000, it’s now worth $300,000. And if you sell it normally, you’d have to pay the capital gains taxes on the $200,000. But if you did a 1031 exchange, you would be able to buy another property at that $300,000 amount and be able to defer your taxes. That way you can buy larger and larger properties, and then snowball your passive income by doing that without paying those capital gains taxes just yet. So you can defer those taxes and upgrade and upgrade if you did want to sell your property to get another property. Now currently, I haven’t sold any of my properties because I want to avoid those capital gains taxes, I want the depreciation benefits, I want the Passive Income Cash Flow benefits, I want the appreciation and I want the debt pay down. So there’s all these different benefits that I’m getting by holding on to my property. Now this is just my opinion, that’s what I like to do. But in the future, I can see myself flipping properties, because I can see how you can make a lot of money just doing that. But I know that flipping properties is an active process to get money right away. It’s not something where you can get passive cash flow. So flipping would be something I would do for fun that I would try to figure out in the future, I could see it being a fun project where I am repairing properties, and then selling them right away at a profit. But there are a lot of costs involved with it. So there’s still a lot of things to consider. So it’s definitely not as easy as HGTV makes it seem. However, I
do know a lot of investors in the bay area who are actually making a lot of money, just flipping properties in the bay. And I know that it’s still good way to make a lot of money and then put that back into rentals. So it could be a good strategy as well. If you do want to sell your properties, I think a good time to maybe sell is one of the depreciation benefits is used up, for example. So as I mentioned, after 27.5 years that depreciation tax benefit will be over. So it might make sense for you to sell that property. But another thing is there’s another benefit called step up in basis that if you pass away and you give your properties here heirs, they won’t have to pay the capital gains because the basis is stepped up for those profits. So for example, if you bought a property at 100,000, it’s worth 500,000. And then you pass away and the air gets it that air won’t need to pay capital gains on the $400,000 difference that you would have to pay if you sold that property at $500,000. So that’s another cool thing if you want to build generational wealth, this is one way where you can pass your properties down to your heirs and they won’t have to pay the capital gains tax of the difference that the property has appreciated to however, if they inherited the property and then the property appreciates afterwards, they would need to pay the capital gains tax between the amount that they got it and then it appreciated afterwards. If that makes sense. I do a whole explanation of all the benefits of real estate investing in one of my previous videos so make sure to check that out for another look As step up and basis if you don’t understand it in this video, and then the two other reasons you might want to sell it is the 1031 exchange, like I mentioned previously, where you want to buy another larger property and then you might want to sell it because you want more capital for a bunch of other deals you’ve seen that you don’t have capital to put into you want the profit so that you can put it into more investments. I think that makes sense in a way as well. So these are reasons why I possibly would want to sell in the future but I don’t see myself selling these properties that are currently cash flowing for a long period of time probably going to leave these properties and let it cashflow for me for a while and let it appreciate let myself get all the benefit that I listed previously. But like I mentioned before, I may dabble in flipping in the future. So who knows I will report it on this channel if i do so i hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.Transcribed by https://otter.ai