When I was a boy, I mowed lawns around my neighborhood. I started with my parents’ lawnmower, and after I saved up enough money, I went out and purchased my very own mower. I took great care of that mower because I could not perform the job that paid me without it. After a few mowing seasons, a neighbor made me an offer to buy it, and the proposal was significantly higher than what I paid for it a few years earlier. I had a tough decision. Should I take the cash now, or should I continue using my asset to create income?
Assets are what you own, and income is what you earn. These two concepts can merge to form income-generating assets, similar to my lawnmower. Due to the current economic conditions, we have seen an uptick in income-generating investments receiving offers well above what the owners believed to be fair market value. Families we serve have called weekly telling us, “I have an offer to sell. What should I do?”
The first question we ask is, “How much money will you take home from the sale net of taxes?” The IRS will get their pound of flesh. Be sure to speak to your tax professional to get these numbers before considering your decision.
The next question is, “Does the current income from the property maintain your standard of living?” How will you reinvest the money from the sale to replace the current income stream?
Depending on your situation, you may be able to invest the proceeds from the sale into the stock market and let the earnings inside the investments supply your income. If the money from the sale is enough, this could be a viable solution. All investments – even bank savings accounts – have certain levels of risk, and the reinvestment to replace the income will be no different. The more risk you take, the more likely you will experience higher levels of market volatility on the upside and downside. The emotional cost of market volatility replaces the fees and expenses you paid to keep your property in working order. Every income-generating asset comes with varying levels of risk – understanding your risk appetite is essential to make the best decision.
If you were wondering what I did with my mower – I was a young entrepreneur, so I sold the mower and used the money to purchase a well-made bike for my paper route. Mowing lawns was seasonal, and the paper route was year-round – I saw the purchase as an opportunity to increase my income.
Our team at Financial Enhancement Group has helped multiple families work through these tough decisions. Some families chose to sell their assets, and other families decided to retain the existing investment. The decision can be difficult, but each family walked away with clarity about making the best decision for their situation. What would you do with the cash after the transaction? To sell or not to sell – that is the question.
Joseph A. Clark is a Certified Financial Planner and Managing Partner of The Financial Enhancement Group, and an SEC Registered Investment Advisor. Contact Joe at yourlifeafterwork.com or 800-928-4001. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by the Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.