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Retiree Gives Herself a Raise During Retirement

CASE STUDY #1
CA investor more than doubles her return on equity (%) by selling a CA investment property (built in 1964) and exchanging into three new construction homes in the Memphis MSA (built in 2020). She has boosted her overall return while significantly reducing her risk profile with a turn-key investment.
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FULL STORY

Retiree Grows Income by Trading California Rental Property for Three New-Construction Homes in the Memphis Area

 

There are thousands of books and blog posts about retirement planning and how to create passive income. For many Americans, real estate is a part of this equation. But is there a way to leverage an asset you already own to grow income during retirement? That’s exactly what Suzy did.

 

At the time, Suzy was a 74-year-old retiree living in the Bay Area. She owned two properties: One was her primary, and the other was a 1964 ranch-style home that she had been renting out for the past 12 years. Suzy had grown comfortable with her role as a landlord and accustomed to receiving consistent rental income each month, but as she faced getting older, she wondered if this situation was ideal or even sustainable without support.

 

It was during a conversation with her financial advisor that Suzy was introduced to the idea of a 1031 Exchange. A 1031 Exchange is a real estate transaction that allows for the deferment of capital gains taxes on the profit from the sale of an investment property if the seller uses the proceeds to purchase a like-kind investment property or properties. He explained that an Exchange would be advantageous in her situation because she could get a better return on equity outside of California. Then, he shared his experience of working with Meridian Pacific Properties to purchase a new-construction, single-family investment home in the Memphis area.

 

Curious about the opportunity, Suzy met with the Meridian team to understand the quality of homes the company builds and what makes the Memphis area such a great place to own investment properties. Not only is Memphis the logistics capital of the United States, but it’s affordable. Within weeks, and as required by the IRS Code governing 1031 Exchanges, Suzy identified three homes to purchase from Meridian’s inventory of near-complete homes. Each home was located in a desirable area with access to schools, employment opportunities, and amenities. 

 

“Selling the home I had raised my family in and purchasing a property out of state was a little scary because it wasn’t something I had considered previously. Over time, however, and as I reviewed the numbers with my financial advisor, the benefits of owning three brand-new properties instead of one older property became very clear,” explained Suzy. “The Meridian team is very knowledgeable and provided help at every step of the exchange process. Not only did I purchase the homes from Meridian, but I contracted with Meridian Property Management to manage my properties. I’ve been very pleased, and no longer have to worry about being a landlord.”

 

In the end, Suzy traded her one rental property in California for three new homes in the Memphis area. Not only did this cut back on maintenance expenses, but the team at Meridian Property Management leased the homes within weeks, which meant Suzy was earning income almost immediately. In addition, with three properties, a month without rental income was and still is far less likely. By making the decision she did, Suzy doubled her return on equity, significantly reduced her risk profile, turned the responsibility for managing her properties over to professionals looking out for her best interests, and gained peace of mind. More importantly, she gave herself a raise in retirement that’s allowing her to live the life she chooses today.

Suzy, Santa Clara

Overview

 

Sales Price of California Property: $940K

 

Real Estate commissions/closing costs/repairs: $86K

 

Net proceeds from Sale: $854K

 

Purchase price of three (3) investment homes near Memphis: $805K

 

Pocketed funds: $49K

 

SAN JOSE NUMBERS

San Jose Performance Data

San Jose Sales Data

$940,000
Sales Price of San Jose Property
$86,000
Real Estate Commissions, Closing Costs, and Repairs
$854,000
Net Proceeds from Sale
MEMPHIS NUMBERS

Memphis Purchase Data

$805,000
$270,000 + $262,000 + $259,000 + Closing Costs
Combined Purchase Price of three Memphis investment homes.
$49,000
Pocketed Funds

Memphis Property Totals

PropertyCombined Number4254 ShinAult LaneOlive Branch MS6335 Darwood DrOlive Branch MS70 Fairway Hills DrOakland TN
Home Value$791,000$270,000262,000259,000
Down Payment%100%100%100%100%
Debt-$-$-$-$
Down Payment$$791,000$270,000262,000259,000
Est. Closing Costs$13,967$4,732$4,667$4,560
Est. Total Investment$804,967$274,732$266,667$263,560
Est. Monthly Rent$5,590$1,895$1,895$1,800
Gross Annual Rent$67,080$22,740$22,740$21,600
Vacancy Allowance$(1,342)$(455)$(455)$(432)
PM Fee$(6,574)$(2,229)$(2,229)$(2,117)
Property Taxes$(7,691)$(3,440)$(3,376)$(875)
Est. Propety Insurance$(2,300)$(750)$(750)$(800)
Annual HOA Fees$(593)$(125)$(200)$(268)
Maint. Allowance$(1,315)$(446)$(466)$(423)
Net Operating Income$47,266$15,296$15,285$16,685
Debt Service$-$-$-$-
First Year Before-Tax Cash Flow$25,389$15,29615,285$16,685
First Year Cash Flow Per Month$2,116$1,274$1,390$1,390
Cap Rate2.7%5.7%5.8% 6.4%
SIDE-BY-SIDE COMPARISON

San Jose

Memphis MSA

San Jose Returns

$607,655
Projected 10-Year Net Gain

Memphis Returns

$761,191
Projected 10-Year Net Gain
$49,000
Cash Packeted at Time of Purchase *

* This does not include potential tax implications

PROPERTY PHOTOS
SAN JOSE, CA
70 FAIRWAY HILLS DR. OAKLAND TN
4254 SHINAULT LANE, OLIVE BRANCH MS
6335 DARWOOD DR. OLIVE BRANCH MS
Client Testimonial

“Selling the home I had raised my family in and purchasing a property out of state was a little scary because it wasn’t something I had considered previously. Over time, however, and as I reviewed the numbers with my financial advisor, the benefits of owning three brand-new properties instead of one older property became very clear,” explained Suzy. “The Meridian team is very knowledgeable and provided help at every step of the exchange process. Not only did I purchase the homes from Meridian, but I contracted with Meridian Property Management to manage my properties. I’ve been very pleased, and no longer have to worry about being a landlord.”

Suzy, Santa Clara

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