Real Estate Investment Decision - Rental or Sell

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Real Estate Investment Decision - Rental or Sell

Post by nward »

Hi Bogleheads,

I am new member to the site and I am looking for some feedback on a Rental. I am purely looking this from Return perspective to either Sell or keep Renting:

1) House is in Ahwatukee/Phoenix, AZ and Paid Off - 2003 built and about 4000 sq.ft - paid $350K
2) With current craziness in housing market - Value ~$750K (Last year it was about $550K pre Covid around March 2020).
3) I will net about $700k after all transaction costs
4) I have been renting for about 3 years for $3K and now rents are about $3.5K and might go higher to $3.8 to $4K in future based on current trend.
5) After HOA, Taxes, Insurance ,net etc....assume 3K net per month or $3.5K in near future if trend continues
6) If I sell now, I will be also in $500K exclusion window

Question - AZ markets continues to be hot as well as stock market. With cash flow of $36K to $42K / year, Is it wise to keep renting or Invest somewhere else for better returns?

I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?

Thanks for reading and appreciate the feedback.
CurlyDave
Posts: 2745
Joined: Thu Jul 28, 2016 11:37 am

Re: Real Estate Investment Decision - Rental or Sell

Post by CurlyDave »

nward wrote: Tue Jun 22, 2021 8:07 pm Hi Bogleheads,

I am new member to the site and I am looking for some feedback on a Rental. I am purely looking this from Return perspective to either Sell or keep Renting:

1) House is in Ahwatukee/Phoenix, AZ and Paid Off - 2003 built and about 4000 sq.ft - paid $350K
2) With current craziness in housing market - Value ~$750K (Last year it was about $550K pre Covid around March 2020).
3) I will net about $700k after all transaction costs
4) I have been renting for about 3 years for $3K and now rents are about $3.5K and might go higher to $3.8 to $4K in future based on current trend.
5) After HOA, Taxes, Insurance ,net etc....assume 3K net per month or $3.5K in near future if trend continues
6) If I sell now, I will be also in $500K exclusion window

Question - AZ markets continues to be hot as well as stock market. With cash flow of $36K to $42K / year, Is it wise to keep renting or Invest somewhere else for better returns?

I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?

Thanks for reading and appreciate the feedback.
The bolded part is the one that makes the deal for me. $500k tax free is very hard to pass up.

There are many risks associated with rental real estate. This is a great time to get out and into stocks.

Do not get me wrong here, I am a real estate investor, but the tax free 500k (check with your accountant about recapture taxation) is a powerful incentive.
Answering a question is easy -- asking the right question is the hard part.
User avatar
David Jay
Posts: 11409
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Real Estate Investment Decision - Rental or Sell

Post by David Jay »

Welcome to the forum!
nward wrote: Tue Jun 22, 2021 8:07 pm I will net about $700k after all transaction costs
Ask yourself just one question: If you did not own this home, would you spend $700,000 in cash to purchase this home and turn it into a rental? If not, sell it (quick - we are past the "Covid" peak here, number of offers per property is coming down).
nward wrote: Tue Jun 22, 2021 8:07 pm I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?
I would separate the investment decision from the buy-sell decision. Focus on whether or not you would spend $700K to become a landlord.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
Wiggums
Posts: 4086
Joined: Thu Jan 31, 2019 8:02 am

Re: Real Estate Investment Decision - Rental or Sell

Post by Wiggums »

I’d sell because I don’t want yo be a landlord. I also think you are getting a good price and have the 500k exclusion.
User avatar
Marmot
Posts: 530
Joined: Sun Oct 10, 2010 1:44 pm
Location: Phoenix, AZ

Re: Real Estate Investment Decision - Rental or Sell

Post by Marmot »

nward wrote: Tue Jun 22, 2021 8:07 pm Hi Bogleheads,

I am new member to the site and I am looking for some feedback on a Rental. I am purely looking this from Return perspective to either Sell or keep Renting:

1) House is in Ahwatukee/Phoenix, AZ and Paid Off - 2003 built and about 4000 sq.ft - paid $350K
2) With current craziness in housing market - Value ~$750K (Last year it was about $550K pre Covid around March 2020).
3) I will net about $700k after all transaction costs
4) I have been renting for about 3 years for $3K and now rents are about $3.5K and might go higher to $3.8 to $4K in future based on current trend.
5) After HOA, Taxes, Insurance ,net etc....assume 3K net per month or $3.5K in near future if trend continues
6) If I sell now, I will be also in $500K exclusion window

Question - AZ markets continues to be hot as well as stock market. With cash flow of $36K to $42K / year, Is it wise to keep renting or Invest somewhere else for better returns?

I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?

Thanks for reading and appreciate the feedback.
Ahwatukee here also. It is nuts for sure. I would sell in this market.be done and take the money.
Marty....don't go to the year 2020....Dr. Emmett Brown
User avatar
gwe67
Posts: 1046
Joined: Mon Dec 23, 2013 9:52 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by gwe67 »

As a rental, those numbers are awful.

Look around the neighborhood, are most of the homes rented out?

Expensive single-family rental homes are almost always a bad deal for the owner.

Absolutely don't miss out on the $500k exclusion.
VTI 48%, VXUS 12%, BND 40%
User avatar
unclescrooge
Posts: 5751
Joined: Thu Jun 07, 2012 7:00 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by unclescrooge »

gwe67 wrote: Tue Jun 22, 2021 9:32 pm As a rental, those numbers are awful.

Look around the neighborhood, are most of the homes rented out?

Expensive single-family rental homes are almost always a bad deal for the owner.

Absolutely don't miss out on the $500k exclusion.
+1
I would sell.
newyorker
Posts: 525
Joined: Sun May 17, 2020 7:59 am

Re: Real Estate Investment Decision - Rental or Sell

Post by newyorker »

Are you guys suggesting that RE prices will come down?

I thought nobody knows nothing applies to both RE and stocks
gougou
Posts: 425
Joined: Thu Sep 28, 2017 7:42 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by gougou »

Sell, because it's tax free gain and you don't look like a seasoned landlord. And if you want exposure to real estate you could buy some REITs or homebuilders.
User avatar
unclescrooge
Posts: 5751
Joined: Thu Jun 07, 2012 7:00 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by unclescrooge »

newyorker wrote: Tue Jun 22, 2021 9:40 pm Are you guys suggesting that RE prices will come down?

I thought nobody knows nothing applies to both RE and stocks
Based on his numbers the ROE is pretty low. As an investment the returns are unappealing.

Also, see this link:
viewtopic.php?t=253203

"Jack Bogle himself says he sold his stocks in year 2000 because valuations did not make any sense to him in those years. "
User avatar
Nate79
Posts: 7284
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Real Estate Investment Decision - Rental or Sell

Post by Nate79 »

Easy sell. The tax exclusion is huge and it's a horrible rental rate vs its value (you should already know this).
User avatar
gwe67
Posts: 1046
Joined: Mon Dec 23, 2013 9:52 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by gwe67 »

Taking a quick look at available rentals in PHX, here is a small single-family house that rents for almost $2 per square foot per month. This is a much more viable rental than OP's house.

https://www.zillow.com/homedetails/2807 ... 2370_zpid/

The OP's house would rent for less than $1 per square foot per month.
VTI 48%, VXUS 12%, BND 40%
BogleFan510
Posts: 577
Joined: Tue Aug 04, 2020 2:13 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by BogleFan510 »

removed by author
Last edited by BogleFan510 on Fri Jul 09, 2021 5:33 pm, edited 1 time in total.
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by nward »

CurlyDave wrote: Tue Jun 22, 2021 8:37 pm
nward wrote: Tue Jun 22, 2021 8:07 pm Hi Bogleheads,

I am new member to the site and I am looking for some feedback on a Rental. I am purely looking this from Return perspective to either Sell or keep Renting:

1) House is in Ahwatukee/Phoenix, AZ and Paid Off - 2003 built and about 4000 sq.ft - paid $350K
2) With current craziness in housing market - Value ~$750K (Last year it was about $550K pre Covid around March 2020).
3) I will net about $700k after all transaction costs
4) I have been renting for about 3 years for $3K and now rents are about $3.5K and might go higher to $3.8 to $4K in future based on current trend.
5) After HOA, Taxes, Insurance ,net etc....assume 3K net per month or $3.5K in near future if trend continues
6) If I sell now, I will be also in $500K exclusion window

Question - AZ markets continues to be hot as well as stock market. With cash flow of $36K to $42K / year, Is it wise to keep renting or Invest somewhere else for better returns?

I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?

Thanks for reading and appreciate the feedback.
The bolded part is the one that makes the deal for me. $500k tax free is very hard to pass up.

There are many risks associated with rental real estate. This is a great time to get out and into stocks.

Do not get me wrong here, I am a real estate investor, but the tax free 500k (check with your accountant about recapture taxation) is a powerful incentive.
Thank you...I know $500K exclusion is key here. Would you still sell if there was no exclusion in terms of ROI and future appreciation?
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by nward »

CurlyDave wrote: Tue Jun 22, 2021 8:37 pm
nward wrote: Tue Jun 22, 2021 8:07 pm Hi Bogleheads,

I am new member to the site and I am looking for some feedback on a Rental. I am purely looking this from Return perspective to either Sell or keep Renting:

1) House is in Ahwatukee/Phoenix, AZ and Paid Off - 2003 built and about 4000 sq.ft - paid $350K
2) With current craziness in housing market - Value ~$750K (Last year it was about $550K pre Covid around March 2020).
3) I will net about $700k after all transaction costs
4) I have been renting for about 3 years for $3K and now rents are about $3.5K and might go higher to $3.8 to $4K in future based on current trend.
5) After HOA, Taxes, Insurance ,net etc....assume 3K net per month or $3.5K in near future if trend continues
6) If I sell now, I will be also in $500K exclusion window

Question - AZ markets continues to be hot as well as stock market. With cash flow of $36K to $42K / year, Is it wise to keep renting or Invest somewhere else for better returns?

I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?

Thanks for reading and appreciate the feedback.
The bolded part is the one that makes the deal for me. $500k tax free is very hard to pass up.

There are many risks associated with rental real estate. This is a great time to get out and into stocks.

Do not get me wrong here, I am a real estate investor, but the tax free 500k (check with your accountant about recapture taxation) is a powerful incentive.
Thank you...I know $500K exclusion is key here. Would you still sell if there was no exclusion in terms of ROI and future appreciation?
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by nward »

David Jay wrote: Tue Jun 22, 2021 8:43 pm Welcome to the forum!
nward wrote: Tue Jun 22, 2021 8:07 pm I will net about $700k after all transaction costs
Ask yourself just one question: If you did not own this home, would you spend $700,000 in cash to purchase this home and turn it into a rental? If not, sell it (quick - we are past the "Covid" peak here, number of offers per property is coming down).
nward wrote: Tue Jun 22, 2021 8:07 pm I am little nervous to invest in stock market now. What would be good investment choice if I have sell the Rental?
I would separate the investment decision from the buy-sell decision. Focus on whether or not you would spend $700K to become a landlord.
I completely agree on renting $700K home. However in good neighborhoods, $500K now seems like a norm for even a smaller home.
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by nward »

gwe67 wrote: Tue Jun 22, 2021 9:32 pm As a rental, those numbers are awful.

Look around the neighborhood, are most of the homes rented out?

Expensive single-family rental homes are almost always a bad deal for the owner.

Absolutely don't miss out on the $500k exclusion.
Thank you for the feedback. What should be rent @ $700K where you will still continue to Rent?
Topic Author
nward
Posts: 6
Joined: Tue Jun 22, 2021 7:48 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by nward »

Nate79 wrote: Tue Jun 22, 2021 10:02 pm Easy sell. The tax exclusion is huge and it's a horrible rental rate vs its value (you should already know this).
I know this is about 5% return. What's the typical return rate you should look for in a rental Net? Thanks..
User avatar
gwe67
Posts: 1046
Joined: Mon Dec 23, 2013 9:52 pm

Re: Real Estate Investment Decision - Rental or Sell

Post by gwe67 »

nward wrote: Wed Jun 23, 2021 4:20 pm
gwe67 wrote: Tue Jun 22, 2021 9:32 pm As a rental, those numbers are awful.

Look around the neighborhood, are most of the homes rented out?

Expensive single-family rental homes are almost always a bad deal for the owner.

Absolutely don't miss out on the $500k exclusion.
Thank you for the feedback. What should be rent @ $700K where you will still continue to Rent?
The old adage was that monthly rent should be 1% of property's value. I wouldn't be interested in this property if making less than 0.8%, or $5,600 per month. Problem is, nobody will rent at that price. People with that kind of income/net worth typically buy instead. That's why expensive single-family homes aren't good rentals.

To make money in the landlord business-- use leverage to buy nearby cheap single- or multi-family properties, manage yourself, raise rents aggressively, and do minimal maintenance. But factor in your time and risk.
VTI 48%, VXUS 12%, BND 40%
Post Reply