Real Estate Investment Decision - Rental or Sell

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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
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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.
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David Jay
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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.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Wiggums
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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.
"I started with nothing and I still have most of it left."
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Marmot
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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
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gwe67
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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.
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unclescrooge
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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
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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
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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.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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unclescrooge
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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. "
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Nate79
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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).
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gwe67
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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.
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BogleFan510
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Re: Real Estate Investment Decision - Rental or Sell

Post by BogleFan510 »

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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..
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gwe67
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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.
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