October 12, 2025 • 8 mins
Hey Mike, I’m getting 8% cash flow on my rental, but I don’t want to be a landlord. What are my options? Discover common misconceptions about real returns in property investments, and the many ways to leave your property management days behind.
Text your questions to 913-363-1234.
Request Your Wealth Analysis by going to www.retireontime.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mike (00:05):
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we want to dive intothe nitty gritty because, well,
frankly, there there's no suchthing as a perfect investment
product or strategy. There arecertain things you just need to
know, so we wanna dive intothat. As always, text your
questions to (913) 363-1234.
And remember, this is notfinancial advice. This is just a
(00:27):
show, so do your research.David, what do we got today?
David (00:31):
Hey, Mike. I'm getting 8% cash flow on my rental, but I
don't wanna be a landlord. Whatare my options?
Mike (00:39):
First off, I doubt you're getting 8%. That's just not
you're either a slumlord that isjust taking complete advantage
of someone that's not pricedappropriately, or you don't do a
proper calculation. Now that'snot ignorance. That's not saying
you're dumb. I'm not saying thatat all.
David (00:58):
Yeah. Walk us through how we determine what our cash flow
is.
Mike (01:01):
So let's talk more about taxes. Schedule e, real estate.
David (01:05):
Okay.
Mike (01:05):
You'll want to understand the current market value of your
property. Not how much it was in1982 when you bought it. What is
it valued today? See how you canmanipulate that? Well, I bought
this house for a $100,000, andI'm getting $20,000 a year in
rent.
(01:26):
It's a 20% return every year.No. It's not. Now that's an
exaggerated bit, but landlordswill do this. Why I put this
much money in there, and this isthe result I'm getting from it.
You need to account for theappreciation of the property as
well.
David (01:39):
Okay.
Mike (01:39):
So what's the current market value of the property if
you were to sell it today? Thensecond, what is the net
operating income? So you need toaccount for your taxes, property
taxes, and so on. You need toaccount for any legal issues. Is
there maintenance?
What's the cost, the operatingcosts? And that's all shown
(02:01):
almost all shown on your,schedule e, on your tax return.
A lot of that's reported. Notall of it, but a lot of it. Most
of it should be reported there.
Should be is the keyword. Andthen you need to ask yourself,
is it a reasonable rate or not?So I've found that a lot of
people think they're getting agood deal on their properties.
Yeah. And it's like, okay.
Well, when's the water tank due?Oh, that that yeah. That should
(02:22):
be replaced. How about the ACunits? Yeah.
That should be replaced too. Areyou gonna put a new roof on
that? Next year. Okay. So you'vebeen delaying all of these very
large expenses Right.
To maintain better cash flow inthe near future. At some point,
you're gonna have to pay thepiper. So once you understand a
more holistic picture of what'sgoing on, then you get a better
(02:44):
idea of your actual cash flow.And then when you understand the
cash flow, then you canunderstand your net operating
income. Income is not cash flow.
Cash flow is the rent that comesin and then where it all goes.
Income is what you get to spendat the end of the day, and those
are very different numbers.
David (03:00):
So after the cash has flowed to wherever it needs to
go
Mike (03:02):
The expenses, the taxes, all the other places at the end,
what's your income if you spendit? Yes. And that's not just
after taxes, all these things,because landlords will need to
put a part of their cash flowinto a reserve for larger
expenses in the future. So whenyou start to understand that,
you're probably getting at best4%.
David (03:22):
Oh, to be more realistic. And so do people have you ever
met anybody that has come tothat 3% or 4% on their own, or
do most people really need likean independent set of eyes to
say, no, it's really this?
Mike (03:34):
I found most people skew numbers to make themselves feel
better about it. They wannadistort it so they feel good
about their investment. Mhmm.And their investment probably
was really good for the firsttwenty years, but at some point,
things typically change. And theother part too is there have
been people that thought theyhad a positive cash flow, and
once we do the analysis, they'reactually losing money every
year.
So you've got to be mindful ofhow these calculations are done.
(03:58):
Yeah. Then the next part of itis where could your money go? So
if you're a a landlord, you'veprobably been depreciating the
asset. Depreciation the asset isthe value of the property, the
basis you put in there.
You can basically write off onyour tax return and depreciate
the value to zero. But when yousell, it's called a depreciation
recapture. You're gonna paytaxes on everything you
(04:19):
depreciated. So it's like thegovernment let you pay less in
taxes, but then they're gonnaask for it back. When once you
sell?
Yep. Unless you die. Only way toget a depreciation recapture is
death. So when you understandthat complexity, you have to ask
yourself, okay. And I'm using anaverage number here.
Say you got a million dollarproperty. Do you really wanna
pay 30% or so in taxes? And howlong is that really gonna take?
(04:42):
And you might say, well, themarkets are averaging 12%.
That's what they have been.
There's a reason why everyonesays past performance is not an
indicator of future returns. Wecould be entering to a flat
market cycle. What if we do?What if you sell the property,
pay 30% in taxes, and you neveractually get much growth for ten
years? You've got to weigh therisks.
You may want to sell theproperty, pay the taxes, because
(05:04):
you've got more investmentoptions at that point. You may
decide, well, maybe I don'twanna do this. Maybe you move
the property into a REIT. Thisis called a seven twenty one up
REIT, and then you've got theoperating partnership units that
you're then maintaining yourcash flow. There's probably not
much appreciation of the valueof your units, but you're
getting a higher cash flow.
(05:25):
Okay. That's fine. Cash flow inthat situation more like income,
because you don't really haveexpenses at that point. Maybe
you decide to do a ten thirtyone exchange into a Delaware
statutory trust, which thenwould pay you income, so cash
flow, and that's maybe around 4%or so. But the value, because
it's fractional ownership of theproperty, so that's why it
(05:45):
qualifies for a ten thirty oneexchange, that value increases
as well.
So you're getting appreciation,and you're getting the cash flow
as well. So you've replaced yourincome. You're growing your
wealth. All as well. That mightbe a better option for you.
At some point, even if it makesfinancial sense to keep a
property, from a lifestylestandpoint, it might not. Gotta
(06:06):
know your options.
David (06:07):
Right. And so how do people get a DST or a REIT? Can
do they have to go through anadviser? Can they do it on their
own? Is there an app that'llallow them to to get it?
Mike (06:15):
Yeah. It's not Robin Hood. You have to go through a
licensed professional. There's acouple of ways you could do it,
but it's some sort of licensebecause these are much more
complicated. They're higherstakes.
It's illiquid. You've gotta gothrough a certain person, like a
licensed financial adviser, justto get access to it.
David (06:31):
I see.
Mike (06:33):
And then you have to also use a qualified intermediary as
well. There's a lot of layers toit, so you can't just go out and
do it on your own. Like, you canbuy Apple stock today. You can't
go out and buy a DST, andthere's only a limited amount of
DSTs or UPREITs really any giventime. So you wanna do your
research with someone that'sindependent on this to explore
the different options and so on,but know your exit options.
(06:56):
Because at some point, being thelandlord stinks. Mhmm. And you
get tired of the tenants trashand toilets, and you just wanna
move on. Even if your realestate is passive, it's not
passive. Even if you have amanagement company that's
managing it for you, you'restill working.
You're still managing stuff.You're still making decisions.
You're still concerned about iton your vacations. So if you
(07:17):
really wanna retire, you've gotkind of those three options. Pay
the taxes, seven twenty oneUPREIT, or ten thirty one into a
Delaware statutory trust.
And all of them are right. Ifyou got multiple properties,
maybe you sell one and pay thetaxes. Maybe you do a DST with
another. Maybe you do a REITwith the other. I mean, it's
what is right for you?
That's the the ultimateunderlining question. That's all
(07:39):
the time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcast.
Just search for how to retire ontime. Discover if your portfolio
is built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
(08:02):
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
retirement date. Go towww.yourwealthanalysis.com today
to learn more and get started.
Welcome to How to Retire On Time, a show that answers
your retirement questions. We'rehere to move past that
oversimplified advice you'veheard hundreds of times.
Instead, we want to dive intothe nitty gritty because, well,
frankly, there there's no suchthing as a perfect investment
product or strategy. There arecertain things you just need to
know, so we wanna dive intothat. As always, text your
questions to (913) 363-1234.
And remember, this is notfinancial advice. This is just a
(00:27):
show, so do your research.David, what do we got today?
David (00:31):
Hey, Mike. I'm getting 8% cash flow on my rental, but I
don't wanna be a landlord. Whatare my options?
Mike (00:39):
First off, I doubt you're getting 8%. That's just not
you're either a slumlord that isjust taking complete advantage
of someone that's not pricedappropriately, or you don't do a
proper calculation. Now that'snot ignorance. That's not saying
you're dumb. I'm not saying thatat all.
David (00:58):
Yeah. Walk us through how we determine what our cash flow
is.
Mike (01:01):
So let's talk more about taxes. Schedule e, real estate.
David (01:05):
Okay.
Mike (01:05):
You'll want to understand the current market value of your
property. Not how much it was in1982 when you bought it. What is
it valued today? See how you canmanipulate that? Well, I bought
this house for a $100,000, andI'm getting $20,000 a year in
rent.
(01:26):
It's a 20% return every year.No. It's not. Now that's an
exaggerated bit, but landlordswill do this. Why I put this
much money in there, and this isthe result I'm getting from it.
You need to account for theappreciation of the property as
well.
David (01:39):
Okay.
Mike (01:39):
So what's the current market value of the property if
you were to sell it today? Thensecond, what is the net
operating income? So you need toaccount for your taxes, property
taxes, and so on. You need toaccount for any legal issues. Is
there maintenance?
What's the cost, the operatingcosts? And that's all shown
(02:01):
almost all shown on your,schedule e, on your tax return.
A lot of that's reported. Notall of it, but a lot of it. Most
of it should be reported there.
Should be is the keyword. Andthen you need to ask yourself,
is it a reasonable rate or not?So I've found that a lot of
people think they're getting agood deal on their properties.
Yeah. And it's like, okay.
Well, when's the water tank due?Oh, that that yeah. That should
(02:22):
be replaced. How about the ACunits? Yeah.
That should be replaced too. Areyou gonna put a new roof on
that? Next year. Okay. So you'vebeen delaying all of these very
large expenses Right.
To maintain better cash flow inthe near future. At some point,
you're gonna have to pay thepiper. So once you understand a
more holistic picture of what'sgoing on, then you get a better
(02:44):
idea of your actual cash flow.And then when you understand the
cash flow, then you canunderstand your net operating
income. Income is not cash flow.
Cash flow is the rent that comesin and then where it all goes.
Income is what you get to spendat the end of the day, and those
are very different numbers.
David (03:00):
So after the cash has flowed to wherever it needs to
go
Mike (03:02):
The expenses, the taxes, all the other places at the end,
what's your income if you spendit? Yes. And that's not just
after taxes, all these things,because landlords will need to
put a part of their cash flowinto a reserve for larger
expenses in the future. So whenyou start to understand that,
you're probably getting at best4%.
David (03:22):
Oh, to be more realistic. And so do people have you ever
met anybody that has come tothat 3% or 4% on their own, or
do most people really need likean independent set of eyes to
say, no, it's really this?
Mike (03:34):
I found most people skew numbers to make themselves feel
better about it. They wannadistort it so they feel good
about their investment. Mhmm.And their investment probably
was really good for the firsttwenty years, but at some point,
things typically change. And theother part too is there have
been people that thought theyhad a positive cash flow, and
once we do the analysis, they'reactually losing money every
year.
So you've got to be mindful ofhow these calculations are done.
(03:58):
Yeah. Then the next part of itis where could your money go? So
if you're a a landlord, you'veprobably been depreciating the
asset. Depreciation the asset isthe value of the property, the
basis you put in there.
You can basically write off onyour tax return and depreciate
the value to zero. But when yousell, it's called a depreciation
recapture. You're gonna paytaxes on everything you
(04:19):
depreciated. So it's like thegovernment let you pay less in
taxes, but then they're gonnaask for it back. When once you
sell?
Yep. Unless you die. Only way toget a depreciation recapture is
death. So when you understandthat complexity, you have to ask
yourself, okay. And I'm using anaverage number here.
Say you got a million dollarproperty. Do you really wanna
pay 30% or so in taxes? And howlong is that really gonna take?
(04:42):
And you might say, well, themarkets are averaging 12%.
That's what they have been.
There's a reason why everyonesays past performance is not an
indicator of future returns. Wecould be entering to a flat
market cycle. What if we do?What if you sell the property,
pay 30% in taxes, and you neveractually get much growth for ten
years? You've got to weigh therisks.
You may want to sell theproperty, pay the taxes, because
(05:04):
you've got more investmentoptions at that point. You may
decide, well, maybe I don'twanna do this. Maybe you move
the property into a REIT. Thisis called a seven twenty one up
REIT, and then you've got theoperating partnership units that
you're then maintaining yourcash flow. There's probably not
much appreciation of the valueof your units, but you're
getting a higher cash flow.
(05:25):
Okay. That's fine. Cash flow inthat situation more like income,
because you don't really haveexpenses at that point. Maybe
you decide to do a ten thirtyone exchange into a Delaware
statutory trust, which thenwould pay you income, so cash
flow, and that's maybe around 4%or so. But the value, because
it's fractional ownership of theproperty, so that's why it
(05:45):
qualifies for a ten thirty oneexchange, that value increases
as well.
So you're getting appreciation,and you're getting the cash flow
as well. So you've replaced yourincome. You're growing your
wealth. All as well. That mightbe a better option for you.
At some point, even if it makesfinancial sense to keep a
property, from a lifestylestandpoint, it might not. Gotta
(06:06):
know your options.
David (06:07):
Right. And so how do people get a DST or a REIT? Can
do they have to go through anadviser? Can they do it on their
own? Is there an app that'llallow them to to get it?
Mike (06:15):
Yeah. It's not Robin Hood. You have to go through a
licensed professional. There's acouple of ways you could do it,
but it's some sort of licensebecause these are much more
complicated. They're higherstakes.
It's illiquid. You've gotta gothrough a certain person, like a
licensed financial adviser, justto get access to it.
David (06:31):
I see.
Mike (06:33):
And then you have to also use a qualified intermediary as
well. There's a lot of layers toit, so you can't just go out and
do it on your own. Like, you canbuy Apple stock today. You can't
go out and buy a DST, andthere's only a limited amount of
DSTs or UPREITs really any giventime. So you wanna do your
research with someone that'sindependent on this to explore
the different options and so on,but know your exit options.
(06:56):
Because at some point, being thelandlord stinks. Mhmm. And you
get tired of the tenants trashand toilets, and you just wanna
move on. Even if your realestate is passive, it's not
passive. Even if you have amanagement company that's
managing it for you, you'restill working.
You're still managing stuff.You're still making decisions.
You're still concerned about iton your vacations. So if you
(07:17):
really wanna retire, you've gotkind of those three options. Pay
the taxes, seven twenty oneUPREIT, or ten thirty one into a
Delaware statutory trust.
And all of them are right. Ifyou got multiple properties,
maybe you sell one and pay thetaxes. Maybe you do a DST with
another. Maybe you do a REITwith the other. I mean, it's
what is right for you?
That's the the ultimateunderlining question. That's all
(07:39):
the time we've got for the showtoday. If you enjoyed the show,
consider subscribing to itwherever you get your podcast.
Just search for how to retire ontime. Discover if your portfolio
is built to weather flat marketcycles or if you're missing tax
minimization opportunities thatyou may not even know exist.
Explore strategies that may beable to help you lower your
overall risk while potentiallyincreasing your overall growth
(08:02):
and lifestyle flexibility. Thisis not your ordinary financial
analysis. Learn more about YourWealth Analysis and what it
could do for you regardless ofyour age, asset, or target
retirement date. Go towww.yourwealthanalysis.com today
to learn more and get started.
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