These are the steps you can take to shift your portfolio into retirement mode.
- Review your retirement needs.
- Evaluate reserves and property cash flow situation.
- Qualify each property as A, B, C, D for participation and contribution.
- Qualify ‘A’ properties for cash flow needs.
- Liquidate ‘D’ properties for reserves.
- Evaluate reserve expectations.
- Restructure remaining portfolio to be more efficient.
Let’s examine them one by one.
1. Review your retirement needs.
To prepare your portfolio you should know certain things. First, your CASH FLOW NUMBER, how much money do you need monthly. Second, your RESERVE number, how much money you want for reserves.
Lastly, any other objectives beyond lifestyle do want to reach. This could be money for donation, second home, vacations, and to give to heirs.
2. Evaluate reserves and property cash flow situation.
Take each property and determine how much cash flow it provides annually. What are rents, and expenses? Is there a loan? This will tell you how your portfolio is performing.
3. Qualify each property as A, B, C, D for participation and contribution.
Determine the quality of each property based on certain criteria: income, repairs, and owner contribution.
| INCOME | REPAIRS | CONTRIBUTION | |
| A | Excellent Income | No repairs | NO time or energy |
| B | Okay Income | Low repairs | Little time & energy |
| C | Not performing well | Regular repairs | Moderate time & energy |
| D | Losing money | Lots of repairs | Lots of time & energy |
4. Qualify ‘A’ properties for cash flow needs.
Now that you have qualified the properties A-D, start with the ‘A’s and add up annual cash flow to see if it reaches your annual cash flow goal. If you reach that number with your ‘A’ properties – that is great! If not, then move to your ‘B’s to see if you reach it. Then to your ‘C’s. After you reach your CASH FLOW NUMBER everything else is bonus.
5. Liquidate ‘D’ properties for reserves.
The properties you qualified as ‘D’ – consider selling. How much will they add to your reserves if sold? How far off your RESERVE requirements are you without selling any?
6. Evaluate reserve expectations.
Determine your reserves in 3 different ways. First, what is your safety number? What number in the bank makes you feel safe and secure. This is your sleep tight number.
Second, what amount will you contribute to good causes, vacations, kids education, life goals, etc.
Third, investment money. What amount do you want available to take advantage of opportunities that come along. This could be investments, lending, etc. that will make money.
7. Restructure remaining portfolio to be more efficient.
With this knowledge (how much of your property meets your lifestyle income and how much reserves you want) you are able to determine what to do with the middle of the portfolio, the extra income or capital.
If you are happy with the portfolio – don’t make any changes. If you want more monthly income then pay off debt or shift properties to acquire more rents. But keep it pointed at your short and long term retirement objectives.
Have fun in the process, and happy retirement!
