“The question of what you want to own is actually the question of how you want to live your life.” ~ Marie Kondo
About five weeks ago, I chose to begin a 30-day experiment as a Vegan. Thirty days in, I was feeling so good physically, mentally, and spiritually, that I extended my experiment to an additional thirty days, plus also removed all caffeine, sugar, gluten, and alcohol from my diet for the same period of time. My friends jokingly asked, “What’s left?” – but, I knew I was on to something.
I began noticing that I was no longer willing to tolerate anything that was not a complete fit with how I want to live my life, and I began making other positive choices. Among those changes was a highly-energized decluttering episode of my home. To be sure, I am not one who typically has a lot of clutter in my environment – I tend to operate in the other direction (donating/recycling/throwing away are some of my favorite pastimes). I got very clear on what I wanted to keep, and what I wanted to release. If items were not used at least monthly, out they went.
In her book, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing, Marie Kondo writes about what happens when you become very intentional as to what you keep in your life. If an item does not bring you complete joy, or is not one you absolutely love, it goes. What remains are things that make your heart sing and lift your energy. Gone are the energy Hoovers and drags on your daily happiness. Kondo asserts this process has a magical domino effect on the rest of your life, bringing you more joy and alignment in every aspect of your existence.
Taking a nod from Kondo, I believe investors should apply the same principles to their real estate portfolios. That is, I advocate that investors should go through each and every holding and give it rigorous scrutiny. Outline your financial, lifestyle, and personal goals and apply the Kondo test to each property you own (whether it is a second home or a primary residence). I have developed a real estate performance calculator that facilitates this process, but for the purposes of this writing, I’ll give you a simple set of criteria:
1) How many days per year are we using the property?
2) What are the true expenses to carry this property?
3) What are the hidden expenses to carry this property (for example, time spent on weekends/holidays fixing things and tending to lawns/gardens, and/or feeling the odd pressure to use the property more often given your investment level when you’d actually prefer to spend your time elsewhere)?
4) Have we outgrown the property or need to downsize?
5) Is the area one that continues to call our heart (for example, many investors are leaving hotter, congested, coastal areas in favor of cooler climates, less traffic and more peaceful communities)?
6) What is our cap rate if using the property as a rental? What is our long-term upside in appreciation?
If you determine after your analysis that the property doesn’t pass the Kondo test and is no longer a fit with your goals and objectives, consider doing a 1031 tax-deferred exchange. You can sell the properties that do not fit and reinvest your sale proceeds, tax-free, in new properties (it must be a true, like-kind exchange) that do fit. Please note: there are certain requirements that must be met when doing a 1031 exchange, and you will want an attorney, a CPA, a qualified intermediary, and your real estate agent working in concert to assist you throughout the process.
Life is short. There is no better time than now to really get clear about what it is you want in your life, what it is you want to let go of, and what you want to bring in. Be certain that every property you own brings you immense joy and a great return financially. Perhaps you will also see magic appear in other areas of your life as well.