What I learned when retiring my business
Rick Karl, former owner of Hollywood Dog Training School, discusses the tricks he learned when exiting his career.
For four decades, Rick Karl ran the show at Hollywood Dog Training School, one of the West Coast’s oldest and most reputable dog and cat kennels and training facilities. Karl proved his mettle as a business owner during his time on the job, but as he approached the end of his career, he met with a new set of challenges. Wells Fargo Works for Small Business spoke with Karl about his strategies for navigating the transition into retirement.
Wells Fargo Works: What obstacles did you encounter when you first began thinking about retirement?
Rick Karl: Succession was not really an option. Even though I had a good supervisory staff, that was not the way I wanted to go. I was the face of the business. Without me, the business would have fallen away. When other people came to look at it, I knew they couldn’t do it.
I’d always thought my business would be my retirement — the land, anyway. But I just couldn’t see paying the tax that would’ve been required on the sale. It came to a point where I was feeling a little bit trapped. This was a stressful time.
Wells Fargo Works: Who did you rely on to help you decide between different exit strategies?
Karl: There was a commercial real estate agent that had been coming into my business for over 20 years. He said to me, “Rick, have you ever heard about a 1031 exchange*?
So he started explaining to me a little bit about the process, and it began to feel to me that now I had some tools, some information at least, that could allow me to consider this as an option. He shepherded me through it the whole way.
Wells Fargo Works: How did the 1031 exchange help you achieve your retirement goals?
Karl: I needed to figure out a way that my property could take care of me. I had a neighbor who had been interested in my business: He had a large public storage company, and it was easy to assume he could double his size and be very happy. He came back with the best offer that I ever got. It was really a slam-dunk.
With the exchange, you have to take the total proceeds from the sale of the property, and put it into the 1031. I wound up buying a building in Alabama, and I have Golden Corral as a tenant. I put what they pay in monthly rent toward my mortgage payments, and I live on the rest. I’m making more now being retired than I did when I was working. And I have better write-offs. It’s turned out marvelous.
Wells Fargo Works: How have you been spending your retirement?
Karl: Right now, I’m working my little tail off. I’m still kenneling up in my ranch, and I take two dogs a month and train them. One of my key dog trainers has a facility that she’s building up, so I am in the process of really helping her continue to do that. I’m doing more than I did when I was working. It keeps me active, and it’s what I hoped my retirement would be like.
* What is a 1031 exchange?
Commercial property owners who are looking to sell their property don’t necessarily have to pay the capital gain taxes normally owed on such transactions. With a 1031 like-kind exchange, the property seller can defer those taxes by reinvesting all of the proceeds they make from the sale into a new property. As long as it’s performed according to IRS regulation, a 1031 exchange can be a great way to make changes to your business’s property holdings without worrying about the taxes involved.
Now that you’ve read Rick Karl’s experience with a 1031 exchange, learn more about the questions to ask before pursuing one.