“Failing to plan is planning to fail”- Alan Lakein

One of the most important (and also the most difficult) parts of owning a property is having a plan.  This article will list the elements of a property plan and include an explanation of each of those elements. A plan includes:

1. A full understanding of the annual costs and benefits of holding a piece of property. The three most common are property taxes, insurance, and maintenance.
2. Your personal and/or family goals.
3. The opportunity cost.

The costs are always minimized in real estate courses that claim you are going to be rich through real estate, but are in reality a very real part of the experience. Everyone who owns property, pays taxes on it or else it goes to the Tax Sale. While, you can’t skip paying taxes, you can minimize the amount paid. Please read our article The Top 3 Ways to Lower Your property Taxes for more information. The savings may seem small, but if it is your plan to hold the property for 20 years, those savings become huge. For example, if you get your tax bill cut from $1,250/year to $750/year, the savings over 20 years would be $10,000! Of course, the property gets reassessed every 5 years, but we agree with Ben Franklin in that “a penny saved is a penny earned.”

Another cost is that of maintenance. If you think the city is going to allow your grassy lot to not ever be mowed, think again. Municipal Livibility departments within Lowcountry cities is very real. These are enforcement departments who through tickets and fines, can force compliance with the myriad of laws regarding how you keep your property and how it affects the neighborhood. If you have a building on your property that you want to keep, you also have to take into account roofing, termites, copper-theft, fire, and Acts of God such as a tree-falling in a hurricane. If you plan on protecting the building, insurance can help with these risks, but usually adds up to be a large annual cost.

In our opinion, the goals of you and your family are the most important part of the plan.

How often have you really asked yourself: What do I want? Where do I want to be in 5 years? These can be scary questions, but are important on the road to figuring out how to reach these goals. Knowing what you want is the first step to getting what you want. After all, it becomes hard to reach a specific destination if you don’t know where you are going. Once you know this, you can work to see how (or if), the property helps to meet your goals.

For example, if you want to go back to school for a degree and don’t plan to live in the area, you may decide to sell and invest the money into tuition to meet that goal. A relative who left you the property would have a hard time being angry at you using the proceeds to better the life of you and your family via education, plus they can not bring property to Heaven so they no longer need it. Most families focus on making life better for those who came after them, so they don’t have to “go through what I did.” Sometimes in lieu of a will (also type of plan), you must go with the spirit of the person to determine the best course of action. If your family can not bear the thought of your selling, discuss having them buy you out or write an agreement where they share the burden of the taxes and maintenance.

You may also decide to keep the property as an investment or to pass it on to the next generation as family property. This is fine too, but makes planning all the more important as you have to worry about the above costs compounded over 20-50 years.  In this case, communication with your family is important so that they know and understand the plan, why it’s important to you, and what their costs and benefits will be.

Potential cash flow is also an important part of the plan. Is there a way to use the property to make money to offset some of these costs? If the answer is yes, then it makes holding the property long-term profitable, and turns it from a liability into an asset.

If it’s just another thing you own, that may have a family connection, but that you have no use for, consider a sale, but have a plan for the money. Just because you do not want the property, doesn’t mean you can’t set aside a small emergency fund and invest the rest for your future. Say you had inherited a property in 1979, that instead of keeping it, you sold for $120,000. You set aside the $20,000 for emergencies (job loss, car repairs, home repairs), and you put the remaining $100,000 in an index fund that tracks the S&P starting in 1980. That money would be worth $7.3M in 2018. It is tough to get this level of growth with real estate. 

This brings us to opportunity cost. It is a cost hardly anyone ever considers. We all know that we have 24 hours in a day, 365 days in a year, and maybe 75 years in our lifetime, but no one thinks about it. If you had kept the property in the example above, it may be worth $300,000 in today’s value, but you missed out on $7.3M. That is the opportunity cost that the world’s best investors take into account. It involves using today’s assets to make the most of tomorrow. Money can’t buy love or happiness, but it can buy education, healthy food, retirement, and other opportunities that can further lead to happiness.

We want you to succeed! Please read our other articles to learn more and feel free to contact us if you have any questions or feel that we can serve you.