Case Study 1
Evaluating the Cash Flow and Alternatives for $860,000 in Real Estate Equity
$51,000
Annual cash-flow loss across five properties
$860,000
Of equity tied up in the properties
$94,000
Potential annual cash-flow difference
What they thought
This was a highly educated, financially sophisticated couple who had done considerable research before investing in real estate. The wife had spent years building and managing a five-property rental portfolio, and the household also had an existing investment advisor at Fidelity.
The properties generated substantial gross rental income, and years of work had gone into building and managing the portfolio. Like some thoughtful real estate owners, they had good reasons for the decisions they made along the way.
What they hadn't done was step back and evaluate what all of those decisions were producing for the household as a whole.
What the Numbers Showed
Despite the gross income, the five properties were producing an approximately $51,000 annual cash-flow loss. Two of the properties had also lost value over the prior six years.
With approximately $860,000 of equity tied up in the properties, the analysis raised a much bigger question:
What else could that equity be doing for the household?
What the Analysis Could Reveal
The couple could now compare keeping the properties with other uses of the equity.
As one illustration, redirecting approximately $860,000 to an alternative producing a hypothetical 5% annual cash yield would generate approximately $43,000 of annual income instead of a $51,000 annual loss, a potential $94,000 annual cash-flow difference.
And real estate turned out to be only part of the opportunity. The broader planning work identified additional recommendations with potential financial impacts that exceeded even the issue that initially brought them in.
They came in with one problem. Looking at their entire financial life uncovered opportunities they weren't looking for.
As a hypothetical illustration, if approximately $860,000 in real estate equity were available for reinvestment and generated a 5% annual cash yield, it could produce approximately $43,000 in annual income. Compared with the properties' assumed $51,000 annual cash-flow deficit, this represents a mathematical difference of approximately $94,000 annually. This illustration does not account for property disposition costs, taxes, investment fees, changes in principal value, or differences in risk and liquidity. The 5% yield is an assumption, not a guaranteed or projected investment return, and the comparison does not establish that selling the properties would produce a superior overall financial outcome.