There’s Always Money In The Banana Stand

Banana Stand 500x372Arrested Development was an early 2000’s TV comedy loved by its fans. Despite critical acclaim, it failed to gain traction and the show was canceled after three seasons.

Years later it was revamped as a Netflix series thanks to the enduring hilarity of the first three seasons and its grassroots fan base. Challenged with cast schedules, the fourth season on Netflix was not a huge success.

Mrs. RBD and I barely made it through the whole fourth season an never tried the fifth.

I didn’t watch the show when it originally aired, but Mrs. RBD turned me on to it while we were dating and we binge-watched the three seasons together. It’s an absurd but excellent piece of comedic work.

One of the main plot locations of the show is the Bluth Family Frozen Banana Stand. The banana stand was started by George Sr., the patriarch and founder of the family real estate development business.

When the family business was struggling, George Sr. assured his son Michael, “there’s always money in the banana stand”. The phrase invoked security, as in the banana stand was a stable cash flow generator and could help carry the business through hard times.

But George Michael (son of Michael) realizes the banana stand is actually losing money and wants to burn it down. Michael, not wanting to micro-manage his son (like his father did), decides to help George Michael burn the stand down to spite his own Dad’s meddling. He also thought his brother G.O.B. had sent in the insurance check.

He didn’t.

Later we learn that George Sr. was not talking about cash flow when he said there’s always money in the banana stand, he meant literally, there’s always money in the banana stand!  As the stand burned, so did $250,000 of cash hidden in the walls.

Talking Big Ideas While on Vacation

Even with three kids constantly nagging us and fighting off sunblock application, I know of few better ways to relax with the family than a beach vacation.

Beach vacations are so great in fact, it’s hard not to be depressed when you return home and head back to the office. So I don’t return from vacation depressed, I like to talk about big ideas like goals and long-term plans with my wife during our week away.

Long car drives are a great opportunity to have these conversations. One topic that came up on our drive was our condo rental. I’ve owned the condo since 2006. For the last five years, it’s been a cash flow positive real estate asset for us. I’m strongly considering selling it as I expect our excellent tenants to be moving out soon.

I wrote about all the pros and cons of selling in the post Should I Sell my Condo Rental?

When I penned that blog post, I was about 70% in the yes column that we’d sell the condo when the tenants move out.

After speaking with my wife during our vacation, we’re now probably closer to 50/50.


Because Mrs. RBD was more positive on the condo than I thought. My thinking was we’d take the proceeds of selling the condo and make some improvements to our primary residence. Mrs. RBD likes that idea too. Then we’d keep a stash of cash in a savings account and take our time deciding what to do with it. $100,000 of cash in the bank can do a lot of things. Most of all, it would provide us flexibility.

Flexibility to create more free time in our lives. Flexibility to travel. Flexibility to try new things. But she made some insightful comments that have me second guessing.

There’s Always Equity in our Banana Stand

Mrs. RBD made some points that, frankly, I didn’t think she thought much about. For example, she said something to the effect of, “well, many wealthy people tend to own more than one property.” That’s probably true.

The longer we hold onto the condo, the more equity we’ll build through having a tenant pay down the mortgage, and the more value is created through appreciation. She also pointed out that the condo takes up very little of my time. And if we ever really needed the money for some reason, we could always sell it and pull out the equity.

There’s always money in the banana stand.

We have some security blankets built into our financial lives, so it’s hard to see a scenario where we’ll need to tap the banana stand. But you never know. If something expensive happens, we could always ask the tenants to move out and sell.

To date, appreciation has been nil. I bought the condo after the real estate bubble popped (late 2006), but before the mega financial crisis. The price seemed favorable at the time. The same unit would have sold for $30,000-$40,000 more six months earlier. But had I waited for another year to buy, I probably could have gotten a similar unit for $30,000-40,000 less than I paid.

Prices have since recovered from that mess, but not excessively so for old condos in my area. With an updated kitchen, I believe we could sell the unit for $10,000-$20,000 more than I paid for it.

The real windfall from selling it is the equity tied up in the property.

The return on investment (ROI) on the equity in the condo is quite poor. So the chunk of cash is probably better suited to generate cash flow elsewhere.

But just how much equity is in the condo?

That’s actually not an easy question to answer. The US tax code is quite complicated for selling assets that were used as investments. Cost basis and depreciation recapture are two tax code animals I did not want to tame.

So to get a better picture of the equity in the condo, I hired a CPA to do a sale analysis. The basic answer I wanted to know was, if we sell the condo this year, how much money would we walk away with?

For $500, it was well worth the investment. I’m now armed with the information I need to make the best possible decision.

As I expected, if we sell the condo, we’ll depart the closing with a sizable chunk of cash. At least $100,000, depending on the sale price, (of course), and how much, if any, we put into upgrading it before the sale. Upgrades could include a full-blown kitchen and/or bath renovation costing anywhere from $10,000-$25,000. We’ll need to consult an agent on whether that makes sense or not.

The CPA pointed out some important points. Namely, how to calculate the cost basis by accounting for improvements that were made before I started renting it. Also, it turns out depreciation recapture won’t have any impact unless it sells for well above what I think it’s worth.

The analysis provides a lot for me to think about. I’m mostly happy with the outcome, which confirms what I believed. That is, if we sell the condo, we’ll have a lot more cash on our hands, and the taxman won’t get to put his grubby hands on too much of it.

Selling would bring us peace of mind, simpler financial lives (particularly at tax time), and less overall responsibility. Though I’d miss the income it generates and the monthly increase in my net worth.


We have a sufficient insurance policy on our banana stand. If it burns down, we won’t be out $250,000.

When we do sell, the $100,000 + in cash could be used a number of different ways. We could improve our primary residence, invest it, or keep it for a rainy day.

UPDATE: We sold our “banana stand” in 2019. Here’s why.

One of my goals for 2016 was to develop a plan for a “near-term, pre-retirement lifestyle adjustment”. I have not completed this task yet, but I think a lot about it.

The idea is that once our kids are all in elementary school (about four years from now), perhaps we could make a major adjustment to our lifestyle, where maybe I can ditch my 9-5 and pursue other work that is less time consuming.

And maybe Mrs. RBD can begin collecting an income through freelancing in her previous field of work.

The combination of our investment income, part-time income from both of us, a decreased cost of living, and lower taxes, could add up to a level where we wouldn’t need a job.

Selling the condo would immediately decrease my passive investment income, but $100,000 would give us a buffer we’d need to transition into a new lifestyle.

As it is, the ROI on the condo only yields about 1%. That number could easily be doubled through dividend investing, or possibly via interest on cash in the near-to-mid term. Or we could simply use it as a buffer to supplement our income as we build an alternate lifestyle.

Over time, our banana stand has shifted from a problem child (a la G.O.B.) to a reliable asset helping us pursue retirement.

Which brings to question, if it’s such a positive asset today, why not hold on for longer?

Photo credit: RBD – picture with my phone watching the DVD.

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  1. Benjamin Cooper says:

    Why not do a cash out refi? Pull some equity out, and increase your ROI? Would you still have positive cash flow at 75 or 80% LTV?

    1. BC,
      Nope. Too thin. I refi’d a while ago and got a very good 3.75% rate. I don’t think I could get any better now since it’s an investment. If I were looking to use the equity to buy a second more profitable rental, if be more open to it. But at this point, that is not the plan.

  2. zeejaythorne says:

    Your next tenants might also be lovely and pay down more of the mortgage for you. If it is not causing you any grief, it could be worth keeping.

  3. Does the 1% ROI on the condo include payment of principal? That will probably add another couple of % to your ROI and that amount will increase each year as your tenant will basically pay down your mortgage.
    So you could end up with a 4-5% ‘yield’ on your condo which is significant.
    Hard to get that from divident stocks, and you don’t have to worry about share price volatility with the condo.
    I’d keep it…

    1. Olli,
      Payment of principal does add 2-3%. So good point there. I don’t factor that into my ROI but do track it on a spreadsheet.

      Yeah, I’m starting to lean the way of keeping it. I do expect some problems to arise in the coming years. But this rental takes up little time. Keeping longer increases the likelihood of appreciation. It’s also in an area that could experience significant development in the coming years. So it could be an older property in a sea of new condos/apts and retail. Which could help increase the value.
      Thanks for chiming in.

  4. Just my two cents. 1% is not good enough. Even 3 or 4% is not great. You can find better ways to make money. Sell it!

    I did the same thing on my primary residence turned rental in washington d.c. When I realized my ROI was only 5%, and that I was finding real estate deal elsewhere making much more than 10%, I sold and moved my money over. Best decision I ever made!

    1. Rich,
      I’m also in the DC area. And yes I agree I can find better uses of that cash. I wrote all about that in a previous post. So it’s always a consideration. Once the tenants move out we’ll have a difficult decision. There are a few catalysts I think could lead to appreciation. So there’s a lot of moving parts to think about.

  5. I love those long car rides because of the great discussions we’ve had. I know that’s part of why Mr. F2P and I get along pretty well. If we don’t talk, we make assumptions about each other that end up costing us far more at some point in the future.

    Banana stand? Hell yeah! We have a few of those. Islands of security we can hop on if life throws us a major curve ball: a free and clear primary residence we both agree is way too big for us and that we keep only because we like the business it currently houses, some land in the country and some investments that are more liquid than others.

    Having a banana stand changes how we think about ourselves and our lives. It brings us additional confidence through some added security that we’ll be fine and that we have options. And that’s worth its weight in gold.

  6. Hi RBD, I’m a first-time reader (you can thank Rockstar Finance for linking to your blogpost!), and while I’m sure you discuss it elsewhere, but what about retirement, and how does that factor into this decision? If you and the Mrs. are to leave steady jobs making (presumably) more $$ than you would be part-time, it’s a given that you’d be walking away from participating in any 401(k) and matching funds (how about that free money!?!? Instant 100% ROI). Current laws only allow $5500/year into a retirement fund, which is 1) not much when compared to those aforementioned matched funds, and 2) may or may not be enough to build the sizeable nest egg that you’ll need down the road. Lots of folks have built an entire retirement solely by never selling any home that they have lived in, and structuring so that all the mortgages are paid off well before retirement, sinking the positive cash-flows into paying down the mortgage and maintaining adequate funds for repairs; in doing so, they create a positive cash-flow with little “extra” investment by retirement or even early retirement. Okay, so there are my “arguments” to keep the condo.

    But what if the next tenants aren’t so wonderful? What if they don’t pay on time, or what if they are disruptive to the neighbors or (as mine did) move extra people into the unit until one is living in the garage and they have stuffed rags around the garage doors in an effort to make it more weather-proof, thereby triggering the HOA to write a letter threatening to fine you, the owner, for an unsightly mess? (Let’s not talk about the puppy that they “snuck” in that caused damage to drywall and doorframes) Of course, the extra people moved in were adult children, and since Mom is a part-time traveling home health-care nurse that hasn’t had any jobs lately, which is why she couldn’t pay the full rent this month… It sounds like you currently have dream tenants, which can lead to a false sense of security that owning a rental will always be so easy. Of course, there are management companies if it gets too tiresome to deal with tenants, and if following Paula Pants’ rating of properties (and therefore, tenants) it is an A or B property, you’ll get better tenants anyway than my C-level property brought in. The minute our local market had recovered enough that we didn’t have to bring money to the table to close, we sold that sucka and paid off some debt; had our situation been more of a cash-flow positive one, with a decent tenant, we would likely have held onto the property even though it was in a different city than we reside.

    Great post; I love reading other folks’ thought process on rental properties! I look forward to poking around on your blog some more!

    1. Dani,
      Thanks for your thoughtful comments. Retirement factors into the decision a lot. If you read around, you’ll learn more about this rental and how it came to be. It wasn’t meant to be a rental from the beginning, but I’m making the best of it. I’m torn between holding for a long time and selling. Selling would simplify my life somewhat, and open up cash to invest in assets that would have a better return (like a different property). Having that chunk of cash could also give us flexibility. We’ve certainly been fortunate to have 5 years of good tenants. Out luck could end. That’s another reason to sell.

  7. I am curious about this statement “Also, it turns out depreciation recapture won’t have any impact unless it sells for well above what I think it’s worth.” Can you elaborate?

    1. Ginger,
      Depreciation recapture is a fairly complicated equation. That’s why I hired someone. So I can’t elaborate too much. Essentially, the amount of taxes written off over time via depreciation has to be paid back. However, we haven’t made a ton of money, and there’s little appreciation, so it probably won’t impact us.

      1. I can’t imagine why the CPA would tell you depreciation recapture is a non-factor.

        For example, if the depreciation was $3,000 per year for 10 years, that’s $30,000 in depreciation that must be recaptured at the time of sale. That’s taxable income! I think it’s at your ordinary rate but capped at 25%. So a $7,500 tax hit isn’t nothing.

        I’d double check with the CPA on that one.

        1. CC,
          The analysis is pretty detailed. I didn’t want to get into all of it here, but it made sense how it was explained to me. But I may not have conveyed it well enough in this post. I’ve have accumulated losses on the property over the years. So I believe the losses offset the depreciation recapture up to a certain price point. That’s not to say the recapture isn’t costing me.

  8. I’m a fan of real estate and have no problems with what you’ve written about here, except for one statement that jumped out at me: ” If something expensive happens, we could always ask the tenants to move out and sell.” Umm..Well, you can ask, but if they’ve signed a lease, they are under no obligation to move out until the lease expires. Just keep that in mind when planning for emergencies.

    1. Shaun,
      I did say that casually. Yes, we have a lease that is month to month right now. We’d have to give at least 60 days notice. We have a very good relationship with our tenants and in our current situation, that would unlikely be a problem. But that may not always be the case, so you make a good point.

  9. If I am ever lucky enough to pull the trigger on turnkey properties (I don’t really have any money to do that right now, all is in the stock market) I’m going to hold on to the property forever. Real estate is an interesting asset that appreciates in value instead of depreciating if kept correctly. Hopefully I don’t get proven wrong. Good luck on the condo!

  10. Hey RBD,
    I love the Banana Stand analogy! I never got around to watching Arrested Development. I think I’ll leave it on Net Flix:)

    So, the condo saga continues. Lol. I’m the same way on many properties. It’s 50:50. Sometimes in those cases I let the flow of fate dictate what happens. If for example your tenant wanted to buy the condo, saving you realtor fees, repair costs, and holding costs – that’d certainly tilt me in favor of selling it.

    Another thing that might tilt me in favor is finding that replacement property up front. You would then have a much clearer opportunity cost that could push you off the fence.

    But then again … there’s always money in the banana stand. Lol.

    You going to be at FinCon San Diego? If so I look forward to hanging out. Got my plane ticket and hotel room.

    1. Good point about finding a replacement property first. Still waiting on the tenants. Don’t want to oust good ones. So still waiting them out. Learned something that makes me think they’ll be staying a while longer, but leaving within the next year. So more time to prepare. And yes, I’m booked for SAN!