New Foundation for Second Chance

Bryan Oakley quit his job to spend his days doing something he loves, and for good reason. As a cancer survivor, Oakley is a little more aware of his mortality than the average 36-year-old.

“I received last rites three times while I was sick,” Oakley said. “I have been working very hard, saving and investing, with the expectation that I will not have to work so hard in the future.”

In January, Oakley left his job at the Sanitation Districts of Los Angeles County, where he was a civil engineer making $90,000 a year building treatment plants and sewer systems. He now hopes to make a living doing what he truly enjoys: investing in real estate.

Oakley is off to a promising start. Since first teaming up at age 21 with his mother to buy a duplex in Hawthorne, he has acquired stakes in dozens of rental units in Arizona and the Los Angeles area that pay him $4,000 a month after expenses. He figures he can add to that rental income by selling real estate and substitute-teaching high school science classes if need be.

But do the numbers add up?

Yes, said Nancy Langdon Jones, a certified financial planner in Upland. But she said Oakley faces some major financial challenges, including paring an unusually large debt load and finding professional advice. Another challenge: following the advice, once he gets it, to avoid the type of mistake that can easily sink a lone real estate investor in today’s volatile market.

How Oakley got to this point is the stuff of a TV movie. His parents divorced when he was 7, and his mother spent the next 10 years working as a grocery store checker and bookkeeper. The family lived paycheck to paycheck while Oakley’s mother scraped together enough money to send her children to parochial school.

Indeed, it was Oakley’s mother who set the example he would later follow of parlaying a small bit of cash into real estate. By the time her son was 17, she owned the family’s home, and four years later mother and son were landlords. But not before Oakley was diagnosed with testicular cancer during his freshman year at Loyola Marymount University.

Not only did Oakley battle his way through three operations and a full course of chemotherapy while working his way through college, but he also went on to get a graduate degree in engineering from UC Davis.

Meanwhile, Oakley earned the money for his half of the $20,000 down payment on the Hawthorne duplex as a supervisor of 15 newspaper carriers at the Daily Breeze in Torrance, where he was a top salesman who regularly won lucrative subscription-selling contests.

Oakley acquired building No. 2 before starting graduate school. He got his real estate license in 1995 and has used the savings from his civil engineer’s salary to invest in rental buildings with his mother and with a college friend, who remains a partner in several properties.

An analysis of how his portfolio of 64 rental units yields just $4,000 a month in income demonstrates how difficult it is to make a living as a landlord.

The fact that most of Oakley’s units were acquired with partners accounts for the biggest cut of the take. And the units don’t generate especially high rents, because they are in lower-income areas. Vacancies eat into profit from time to time, and six of Oakley’s units are losing money or barely breaking even. The value of the buildings has appreciated, so those rentals will end up being a good investment for him in the long run, but they don’t enhance his monthly bottom line.

So how does Oakley make sure his transition from a dependable government paycheck to the uncertain world of real estate doesn’t wreck him financially?

The first priority, Jones said, is for Oakley to get a handle on his debt.

In addition to a car loan and the mortgages on his properties, Oakley owes a whopping $72,000 from credit card debt, a stock margin account and a home equity line of credit. Much of it is carefully calculated leverage--he used the home equity line of credit on one condo, for example, to raise cash for a down payment on another property that was rising in value.

“I can’t say enough how impressed I am with Bryan’s logic on these things,” the planner said. But she was less impressed by the $21,000 in credit card debt.

Half of that represents the down payment on a new, electric-blue Corvette--the kind of line item that drives financial planners crazy. But Oakley is unapologetic.

“Every time I drive it, I’m happy,” he said. “I’m not a person who usually charges up a credit card like that, but at this stage I thought I could afford it.”

So the car stays. Jones also recommended that Oakley stop buying stocks on margin, and he’s in no position to disagree because he has found little success as a stock investor.

“It’s not like leveraging money to buy real estate,” the planner said. “It’s just debt hanging over your head.”

But Oakley prefers to leave the credit card and the stock margin accounts as they are. Instead of paying down debt, he wants to raise cash to buy more real estate.

For instance, he has just cleared nearly $50,000 by selling his home in Lomita, and he’s considering using the cash to buy another condo in one of the buildings in which he’s already invested.

Oakley is even thinking about liquidating his retirement accounts: $67,000 with the California Public Employees’ Retirement System and about $48,000 in a 457 tax-deferred retirement plan. But Jones warned Oakley about the penalties he might incur by withdrawing the money early.

“I recommend rolling the money over into an IRA so you can choose whatever you want to invest in,” she said. “You have so much real estate that the retirement account offers you some diversification.”

The two compromised--Oakley agreed to roll over the CalPERS account and liquidate the 457 plan, which he will use to invest in properties in Phoenix and Oklahoma City.

Jones said Oakley’s next priority is to hire a lawyer and other professionals to help protect his interests as he begins to depend almost exclusively on his rental income.

And if Oakley were to get married, Jones said, he should have his attorney draw up a prenuptial agreement to protect the assets he acquired before the marriage.

Oakley also needs a financial planner and a banker who can help manage the mortgage loans for his properties. But Oakley would rather trust his own judgment.

“This is the business that I’ve been able to make money in,” he said. “I haven’t always made the right steps, but I’ve made quite a few good ones.”

*

Stephanie Losee is a regular contributor to The Times.

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This Week’s Make-Over

* Subject: Bryan Oakley, 36

* Occupation: Landlord and real estate investor; recently retired civil engineer

* Gross annual income: $50,000, estimated

* Financial goals: Live off real estate income; find best investment for retirement money

Current Portfolio

* Net real estate holdings: About $990,000

* Retirement accounts: $67,000 in CalPERS plan, $48,000 in 457 retirement plan, $7,500 in Roth IRA

* Other assets: $5,000 in individual stocks; coin and casino chip collections valued at $6,000; $4,500 equity in two cars; $2,500 in bonds

* Cash: $60,000

* Debt: $49,250 home equity line of credit, $21,000 on credit cards, $1,400 in stock margin account

Recommendations

* Pay off credit card debt, home equity line of credit and stock margin account.

* Roll over retirement accounts into a diversified IRA portfolio allocated as follows: 10% in U.S. bonds, 10% in international bonds, 20% in international equities, 15% in a large-cap value fund, 15% in a large-cap growth fund, 15% in a small-cap value fund, 15% in a small-cap growth fund.

* Assemble a team of professional advisors to protect legal and financial interests.

Meet the Planner

Nancy Langdon Jones, president of NLJones Inc. of Upland, is a fee-only certified financial planner and accredited tax advisor.