Strictly Business Minded

Mikia Potter is relying on real estate investments and entrepreneurial pursuits to reach her early retirement goal.

his recommendations, based upon a detailed 2004 household budget, other quantitative data, and one-on-one conversations:

Work At Her Company For Another Six Years. Potter should stay with the company until age 32. This six-year period will allow her to build solid cash reserves, experience, and relationships. Assuming current income growth and non-retirement savings, her target income should be $89,366 with non-retirement savings of approximately $77,626 by year six. Hinson projects that Potter could then use these savings to acquire assets, like an existing business or real estate property, that could be worth from $258,000 to $776,000 in value.

Purchase One Investment Property Every Two Years. This way, by retirement age, Potter will have accumulated approximately 10 investment properties. Assuming a steady cash flow that is consistent with her existing investment property, Potter could accumulate $520,000 worth of real estate value and an annual net cash flow of $38,000 (40% of her desired after-tax income need). Note: this analysis does not take into consideration tax benefits, or any increase in property rental rates.

Manage Cash Better. Hinson says that although access to cash in an emergency is important, Potter has more than she really needs. She should reduce her checking account balance to $3,000 and invest her remaining cash assets. If she consistently puts this money away in a diversified mutual fund account from now until retirement and achieves 8% return, she will have accumulated approximately $327,000. She can then convert this money into a laddered portfolio of municipal bonds yielding about 5%. That could provide an estimated after-tax income of approximately $18,000, or 19% of what she would need to live on annually.

Obtain Home Equity Lines Of Credit On All Properties. While Potter has minimal equity in her homes, she could still obtain approximately $6,000 in home equity lines from banks. These lines will provide capital to purchase the next investment property, or serve as a small secondary cash flow source in the unlikely event of income interruption.

Establish An IRA. At her income level, she can make a pre-tax contribution of $3,000 to an IRA. Wealth can be built much faster in an IRA than in a traditional investment program because of its tax-deferred nature.

Aggressively Build Relationships With Entrepreneurs. She should consider budgeting $3,000 annually for relationship development. This includes joining local clubs such as the Cherokee Town & Country Club and the Association of Emroy Alumni. Potter should attend the annual gala events of charities or nonprofit boards that senior executives of her company support. Making a 10-year gift to her undergraduate or graduate school and participating in upscale alumni activities are also advisable.

Do Not Hurry To Purchase A Subway Franchise. Potter is contemplating purchasing a Subway franchise. Hinson says that this type of business may not maximize Potter’s high level of technical skill and personal interests. “She needs to figure out what her best options are so that she launches a business that fits her skill set. [It should be] something that she will fundamentally enjoy, and [it should be]

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