Rent or sell
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Rent or sell
Trying to decide whether to rent or sell a property.
Bought for 440k, 285k left on 15 yr mortgage at 2.8% with all in payment of $2500 per month. could sell for at least 600k. Not primary residence and currently renting for $2950. It will always rent with higher end renter.
Assets are mostly stocks/bonds and max out 401ks, HSA etc. No cash flow concerns.
I'm viewing property as an investment outside market.
Thoughts?
Bought for 440k, 285k left on 15 yr mortgage at 2.8% with all in payment of $2500 per month. could sell for at least 600k. Not primary residence and currently renting for $2950. It will always rent with higher end renter.
Assets are mostly stocks/bonds and max out 401ks, HSA etc. No cash flow concerns.
I'm viewing property as an investment outside market.
Thoughts?
Re: Rent or sell
I would likely sell. What are you bringing in for rent gross? Net of costs (including occasional costs such as major repairs/replacements). If you are bringing in anywhere near the $2500 you are paying, the ROI is not good enough that I would want to keep an und9versified asset like that.
Re: Rent or sell
You are at less than half of the 1% rule. Bad investment.
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Re: Rent or sell
I would keep it forever (I’m a real estate investor). This house is about cash flow neutral even if you do a 30-year fixed cash out refi of $450K (75% of $600K value). It’s basically a tax-deferred investment (due to depreciation) which you can draw cash out every few years assuming rent and property value grows year over year.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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Re: Rent or sell
I would need to know more about the area and the prospects for appreciation.
On a related note, this reinforces my preference for renting instead of owning my primary residence in retirement. I’m looking to spend around 3k a month and would love to end up in a $600k property for that rent amount. It seems fairly common to get a lot of “bang for your buck” by renting.
On a related note, this reinforces my preference for renting instead of owning my primary residence in retirement. I’m looking to spend around 3k a month and would love to end up in a $600k property for that rent amount. It seems fairly common to get a lot of “bang for your buck” by renting.
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Re: Rent or sell
House was purchased 7 years ago so up 160k in that time. Never know but in an area that appreciates but probably not at level of last 7.
Re: Rent or sell
It sounds almost like you are an accidental landlord.
I am a deliberate landlord with several multi-family properties.
One property is not really a good investment -- you get 80% of the problems and very little of the benefit. Your taxes are complex but your investment is not really big enough to support the tax complexity.
IMHO either a 1031 exchange into either a multi-family, or multiple less expensive single family homes and start developing a true real estate portfolio, or sell and buy stocks.
Answering a question is easy -- asking the right question is the hard part.
Re: Rent or sell
Easy sell, it's a horrible investment (which you should already have understood).
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Re: Rent or sell
Horrible investment? That's a stretch. It's slightly cash flow positive and appreciated 140k in 5 years.
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Re: Rent or sell
This topic is now in the Personal Finance forum.
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Re: Rent or sell
Even if your assumption about the current market value of the property is correct, you won't net anything close to that. Real estate has high transaction costs. If you sell through a real estate broker, you may net $560k-$570k after costs of the sale. Unless you lived in the house for at least two of the five years preceding the sale, you'll pay taxes on all of the gains as well as depreciation recapture. So your net return on your investment will be significantly less than $160k. And in the same five year period that your $440k house appreciated $160k (or about 36%), VTSAX had a total return of nearly 70% without the transaction costs. Double the return.fiorehoffmann wrote: ↑Sun Jun 20, 2021 8:29 pm Horrible investment? That's a stretch. It's slightly cash flow positive and appreciated 140k in 5 years.
How long have you rented the house? If you have been renting it for less than three years and lived in it prior to that as your primary residence, you should absolutely sell now. That will allow you to take advantage of the capital gains tax exemption on your primary residence of up to $250k if you are single and up to $500k if you are married.
In any event, I agree with the others. The property is a poorly performing investment by any objective measure. You should consider selling now during this seller's market to realize your gains, particularly if you can claim the capital gains tax exemption. Unrealized gains in real estate can easily evaporate as quickly as they accrue.
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Re: Rent or sell
Not really enough info to analyze this, but if you have any doubts it is the perfect time to sell. If I had a 600k property I'd want to be getting more than $3k rent.
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Re: Rent or sell
Thanks. Glawdawg. Agree on stock return but I don't live under assumption that market can return what it has in recent years either, same for real estate too.
I do think the cap gains is a real interesting one. I have three more years to hold before hit by the tax if I sell.
I've been viewing the property as an asset outside of stock market. Property will appreciate and mortgage is paid by rent with some extra positive cash flow.
I do think the cap gains is a real interesting one. I have three more years to hold before hit by the tax if I sell.
I've been viewing the property as an asset outside of stock market. Property will appreciate and mortgage is paid by rent with some extra positive cash flow.
Re: Rent or sell
Perhaps I made an assumption that I shouldn't have. In your initial post you indicate the property is currently rented out and is not your primary residence. Has the property ever served as your primary residence? If so, how long has it been in rental use?fiorehoffmann wrote: ↑Mon Jun 21, 2021 8:32 am Thanks. Glawdawg. Agree on stock return but I don't live under assumption that market can return what it has in recent years either, same for real estate too.
I do think the cap gains is a real interesting one. I have three more years to hold before hit by the tax if I sell.
I've been viewing the property as an asset outside of stock market. Property will appreciate and mortgage is paid by rent with some extra positive cash flow.
Your comment that you have three more years to hold (before losing the capital gains primary residence exclusion) suggests that you have been residing in the property as your primary residence the past two years and only now put it into rental use.
And you say "property will appreciate". How do you know that it will appreciate in the future?
Re: Rent or sell
Houses with these numbers are very common. Savvy investors aren't buying them as rentals. That should tell you something.
The house I live in has a "Rent Zestimate" / "Zestimate" of 0.7%. That's way better than your property. Yet, houses around me aren't being bought as rentals. I'm not sure your house would even be a good value to buy as a primary residence.
The house I live in has a "Rent Zestimate" / "Zestimate" of 0.7%. That's way better than your property. Yet, houses around me aren't being bought as rentals. I'm not sure your house would even be a good value to buy as a primary residence.
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Re: Rent or sell
This is what everyone believed in 2005-2009, too.fiorehoffmann wrote: ↑Mon Jun 21, 2021 8:32 am Property will appreciate and mortgage is paid by rent with some extra positive cash flow.
Only in the last 12 months would my house have sold for more than I paid for it in 2005, without even taking into consideration inflation. (Meaning it's likely still less than I paid.)
Had I invested the down payment instead, at 80/20 in 2005, my net worth would have been 20% greater as renting costs about the same as owning here.
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Re: Rent or sell
We have been renting it for one year. We moved from city (in highly desirable neighborhood) to burbs.
Agree that you never know if property or anything will appreciate. I don't expect anything like last 5 yrs.
I've owned the house for 7 yrs overall. I didnt buy as a rental, I bought to live in and now rent it. Hence the question, keep renting or sell now.
Agree that you never know if property or anything will appreciate. I don't expect anything like last 5 yrs.
I've owned the house for 7 yrs overall. I didnt buy as a rental, I bought to live in and now rent it. Hence the question, keep renting or sell now.
Re: Rent or sell
In that case, you only have two (2) more years before you lose the capital gains primary residence exclusion (which applies if you lived in the home as your primary residence for two of the five years preceding the sale). Does your tenant have a current lease or is it a month-to-month tenancy? Depending upon the language of the lease agreement, the sale of rental property is usually best accomplished after giving the tenant notice of non-renewal and preparing the property for sale.
If the timing is right with the tenant's lease terms, I'd still recommend you sell now. You'll be able to realize any gains due to appreciation, take advantage of a possibly inflated seller's market, and avoid all capital gains taxes (only paying tax on depreciation recapture for the single year you have rented the property). Otherwise, you risk the possibility that the property decreases in value or that the return is less than you would otherwise receive from investment of the proceeds. Also, you have the certainty that you will be taxed on all gains if you don't sell it within the next two years which reduces your "return" even further.
If the timing is right with the tenant's lease terms, I'd still recommend you sell now. You'll be able to realize any gains due to appreciation, take advantage of a possibly inflated seller's market, and avoid all capital gains taxes (only paying tax on depreciation recapture for the single year you have rented the property). Otherwise, you risk the possibility that the property decreases in value or that the return is less than you would otherwise receive from investment of the proceeds. Also, you have the certainty that you will be taxed on all gains if you don't sell it within the next two years which reduces your "return" even further.
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Re: Rent or sell
1) 1031 into something more sustainable if it is an opportune time to sell.
2) Wait the 2 yrs required and HOPE it will match your return expectations.
SFR is a tough way to rent and get returns. Lots of capital and risk (vacancies, damages)
There are a lot of ways to make your investment life easier, including RE (I'm down to 5 rentals, from 12 a yr ago)
I will sleep better at night when there are ZERO home rentals in my portfolio, but it has served a very good purpose for wealth accumulation and offseting wage income. I much prefer NNN commercial rentals, but they are tough at the moment as well (internet erosion and covid WFH), so I am only doing land / view lots at the moment. (early retirement)
2) Wait the 2 yrs required and HOPE it will match your return expectations.
SFR is a tough way to rent and get returns. Lots of capital and risk (vacancies, damages)
There are a lot of ways to make your investment life easier, including RE (I'm down to 5 rentals, from 12 a yr ago)
I will sleep better at night when there are ZERO home rentals in my portfolio, but it has served a very good purpose for wealth accumulation and offseting wage income. I much prefer NNN commercial rentals, but they are tough at the moment as well (internet erosion and covid WFH), so I am only doing land / view lots at the moment. (early retirement)
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Re: Rent or sell
You're losing money on this place every day and don't even know it.
You could do the math. Money coming in...expenses...tax benefits. Then complete the math...taxes on gain at sale...depreciation recapture.
If you do the math correctly, you're going to kick yourself for paying out money for the fun of being a landlord.
You could do the math. Money coming in...expenses...tax benefits. Then complete the math...taxes on gain at sale...depreciation recapture.
If you do the math correctly, you're going to kick yourself for paying out money for the fun of being a landlord.
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Re: Rent or sell
I'm in a similar situation myself and also view keeping my place as a rental outside of traditional savings as my second vehicle towards FIRE. Everything I read including this forum states stocks, property/real estate, and business in order to get ahead. The property will continue to go up or stay the same in value and like you said the renter would still be covering your payment making it a cash neutral holding. I'd say hold it for a few years or longer and see what happens especially if the money isn't needed now.
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Re: Rent or sell
That's basically my thinking - another asset. I'm not losing money in the straight cash flow sense, albeit maybe losing in opportunity cost of higher return elsewhere. However, I have nearly all assets in stocks and bonds so a small percentage in a rental property is not bad although maybe better rental property. Appreciate all the thoughts and advice. Many things to ponder.
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Re: Rent or sell
I think it depends on how much you actually want to be a landlord.
I was a landlord the last 10 years or so.. somewhat accidentally.. and some by choice. I am no longer a landlord as of last year.. and I am SOOOOO much happier. Being a landlord depends a lot on tenants.. and even in nice areas you may not get tenants that take care of your place. If you get good tenants.. great.. it's a great investment. Bad tenants.. it's a nightmare and can cause tons of sleepless nights. Especially if you're doing it all yourself and not hiring a management company. If you hire a management company, then say goodbye to profits.
If you're within the 5 year tax exclusion, I wouldn't hesitate to take the profits. At no other time can you take a gain of $160k without getting taxed. And if you miss the window, you'll have to figure out how long it will take you in rent to make that kind of profit without tax. It's a no brainer.
I was a landlord the last 10 years or so.. somewhat accidentally.. and some by choice. I am no longer a landlord as of last year.. and I am SOOOOO much happier. Being a landlord depends a lot on tenants.. and even in nice areas you may not get tenants that take care of your place. If you get good tenants.. great.. it's a great investment. Bad tenants.. it's a nightmare and can cause tons of sleepless nights. Especially if you're doing it all yourself and not hiring a management company. If you hire a management company, then say goodbye to profits.
If you're within the 5 year tax exclusion, I wouldn't hesitate to take the profits. At no other time can you take a gain of $160k without getting taxed. And if you miss the window, you'll have to figure out how long it will take you in rent to make that kind of profit without tax. It's a no brainer.
Re: Rent or sell
Now is a great sellers market. Maybe the best in the last 40 years.
I kept two personal residences and rented them out of necessity 40 years ago when mortgage rates approached 15% and the residential real estate market was terrible for sellers and buyers. Now you, and many real estate investors, have a great opportunity to sell and take a gain.
I wouldn t wait and possibly lose the personal residence capital gains deduction if the market slows in the next couple of years.
I kept two personal residences and rented them out of necessity 40 years ago when mortgage rates approached 15% and the residential real estate market was terrible for sellers and buyers. Now you, and many real estate investors, have a great opportunity to sell and take a gain.
I wouldn t wait and possibly lose the personal residence capital gains deduction if the market slows in the next couple of years.
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Re: Rent or sell
Interesting responses in comparison to the thread about buying speculative property in a blighted area.