I entered this week with a spring in my step. Things were looking up. Stable Hands is up close to 30% YoY. I was at the finish line of reallocating assets for Campbell Drive Properties and as my mother’s care needs expanded it would begin to carry its weight.
I am just going to lay out the condition everything was in when I was handed a mass of financial burden and responsibility. Far more burden than responsibility. In the last couple years of my father’s life finances were not handled well at all. Overspending on bulk good to the point that the guest room looks like warehouse space, too much convivence delivery with way too many fees, and a lot of mystery transactions that drained and destroyed the financial health of my parents.
Think about this for a second. My father told me that when my grandfather passed away he inherited $1M in stocks. When my father passed away he had $1.5M in stocks with $950K drawn against it in a line of credit. If you take that initial million and put it into the compounding interest calculator and run it through at the average rate of the S&P 500 over the past several decades, even with no addition contributions, it should have been at $15M. Leading me to ask the question, “What happened?”
Then we get to the real estate. Now my father bought real estate to keep annoyances at bay. He bought the empty lot across from our beach house to preserve the view and then traded that for a bigger house he eventually retired to. He bought the buildings next to Fuller and d’Albert so he wouldn’t have to put up with neighbors. Now I remember when he sold that property.
The Fuller and d’Albert building had a tax assessed value of over $2 million and after that I just don’t remember. My mind says he sold it all for a combined $4 to $5M and all I remember is the 1031 into the ground lease on the Wendy’s. What became of the rest of it I have no clue.
I can see from Zillow that one property was purchased for $680K in 2017 which would have been from the sale of the Wendy’s. I am sitting here talking about millions of dollars disappearing while the family still has assets totaling more than most make in a lifetime. I understand the irony of that, but remember these are assets. Not liquid cash and dying in America and buying old in America are both very expensive.
You saw in real time the brick wall my brain hit when trying to calculate everything, because it is like money just fell off the back of a truck. It had to go somewhere. In 2012 we sold four commercial properties for around $4 million and in 2017 purchased properties worth $1.3M. Was the ground lease for Wendy’s that worthless in equity and if it was making money how did none of it end up invested with the stocks.
This is why my wife told me not to worry about the past. To focus on protecting the present and the future. With that being Campbell Drive Properties. The biggest single holder of assets for the family and the potential best generator of income. However, when my father past it looked like this. Four properties, three residential, one commercial. Equity value of $2.7M and rent of $7K a month. Now when we factor in taxes, insurance, management, and maintenance fees we were looking at a 1.5% cap rate. Which is dreadful. Add in to that that the housekeeper was being paid $48K a year and the company was operating at an $8K loss.
The rest of the family financial health was the same. The previously mentioned $1.5M investments were bringing in $12K a month but were attached to nearly $7K a month in loan repayment and were taxed as income. In other words the balance sheet didn’t balance.
This is what happens to estates. People get older, the brain gets dulled, and finances are mismanaged, swindled away, or burned through by the American healthcare system. Then families are left with a pile of ashes they sell for pennies on the dollar. I did not want that to be my families fate.
Here is what I did. The first thing was to move the housekeeper to a personal expense, next I cleaned out the commercial property and rented it out, after that I did a 1031 exchange on one of the poor cap rate properties, and now I am doing it again. If we don’t count the asset in transition we are looking at equity value of $2M with monthly revenue of $8.2K, and a cap rate of 2.5%. Still not great but better than where we were, and the only anchor property is leased to a very kind and generous member of this family.
And this is how a ten minute journal becomes an hour and a half.
David Huzzard Writes 