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Michael Sedlak

CFP®, CFA, CEPA
Personal Finance, Retirement, Investing
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“Mike Sedlak, Principal of Golden Trail Advisers, helps his clients to continually refine their personal financial plan to meet their ever-changing financial goals.”
Firm:

Golden Trail Advisers LLC

Job Title:

Founder, Principal

Biography:

Mike Sedlak, founder and managing member of Golden Trial Advisers, LLC. advises executives, business owners and individuals on their financial planning and investments. Since 1998, Mike has worked on cases with people at all stages of their financial lives, from establishing savings targets and investment portfolios to developing business and estate transfer strategies. Mike is an investment analyst by training. He sets investment policy at Golden Trail Advisers, including holdings acceptable for model portfolios.

Mike has a high level of education and credentials in the financial services industry. He has broad designations such as his MBA from Northwestern's Kellogg Graduate School of Management. Mike has specific designations such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Certified Exit Planning Advisor (CEPA). Mike also has securities licenses through the supervisory level. Mike is a recognized authority on estate planning from a financial planning perspective. He has taught an "Advanced Estate Planning Concepts" course for the Exit Planning Institute, a national organization for advisers.

Mike's depth of financial education and experience enable him to advise clients on a broad range of financial issues. One specialty is the transfer and use of wealth for the next generation. In addition, for clients who own a business, Mike is experienced and credentialed as a CEPA adviser to guide business owners through the transfer process (including estate tax minimization). For business owners, transferring or selling the business can be the most important financial decision in their lives.

Mike has held top leadership positions in volunteer organizations including the YMCA (head of Southwest Adventure Guides) and the Rotary Club of Hinsdale (President, Vice President and Board Member). Mike lives in suburban Chicago with his wife and two children.

Education:

MBA, Business, Northwestern University
BS, Business Administration, University of Illinois at Urbana- Champaign

CRD Number:

2986433

Insurance License:

#Life and Long Term C

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    Debt, Financial Planning, Real Estate, Insurance, Life Insurance
Should I sell inherited property or rent it and profit the gains?
100% of people found this answer helpful

Regarding your inherited duplex.  We just helped a client with a similar analysis for several rental properties in California. 

I agree with my fellow financial advisor that you have to look at the cap rate, relative valuations in the area, etc.  I would emphasize that you need to figure in the additional costs that are real, but must be estimated. 

What are some of these additional costs? 

  • Vacancy.  Right now, neither unit is rented.  After you get both units rented, eventually, your tenants will leave and you will have to look for new renters.  You might have to run ads, do background checks and incur other costs to get the unit rented again.  Depending on the market, you might want to figure a 10% vacancy factor.  That means you would get 90% of the amount of the rental income.  Maybe in your market, 5% would be a better factor.  Whatever the number, you have to plan on some reasonable level of vacancy.
  • Property Tax.  How much is property tax?  This will reduce the amount of cash flow.
  • Maintenance.  As buildings age, they demand more attention.  Also, when units turn over, there is a cost on top of vacancy - painting, cleaning, fixing, etc. to make the property attractive for the next tenant.
  • Transportation.  If you visit the property twice a month, that is just under 1,000 miles a year.  The wear and tear on your vehicle along with gas costs could be in the range of $500.  
  • Insurance and Risk of Damage.  You have to pay for insurance on the property and probably should purchase an umbrella policy in case someone gets hurt and sues the landlord (you).  Also, if damage occurs to the building, you would have to pay the deductible.
  • Income tax.  If you make money, Uncle Sam will need to get paid.  That further reduces the amount for you.

As you add in realistic estimates for all of the costs, your return on investment would be less than it first appears. 

That said, I would encourage you to go into more depth for your analysis.  You can use Excel to set up a net present value analysis.  For year 0, you would use the amount of money after all fees and taxes that you would net if you sold today.  For each year along the way, you would estimate that year's cash flow. Last, assume you sell in 10 years.  How much would you net?  Be sure to include property appreciation, back out the transaction costs of selling and determine how much the loan balance would be at that time. Note: you do not have to sell in 10 years, but you would have the option to sell at that time. 

One of the variables for your net present value analysis is a hurdle rate.  How much should your investment return for it to be a "good" investment?  While that is personal, you might want to target at least 6%.  Once you set up your NPV analysis, you can do some what -if scenarios.  That can help you quantify your risks and see which factors have the most impact on your NPV.

I have owned rental property.  And despite the nice financial returns, I sold out because I did not like the fact that buildings require attention - sometimes when you do not have time to deal with the issues.    

Good luck with your decision.

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