I want OUT of my rental units !!!

[modhatter]

I am 64 yrs. old with no experience in the stock market to say. But I feel I must jump in or kill myself with these rentals. I am also aiming for capitol preservation for my son. I just can’t take the rentals anymore. If I have to go into one more property to paint, clean up and repair, after the tenant moves out I think I’ll shoot myself. I just have too much on my plate.

So I have decided to sell. Problem is I have no tax sheltered Roth’s, Ira’s etc. for money to grow tax deferred, so all will be taxed. I will need to generate at least NET for myself $41,000 yearly income (A NET of $3,500 monthly). I am thinking conservatively, because of fear of market downturns. I have read extensively all year, with books some of you recommended and many others, in anticipation of this switch. I feel most comfortable with the following approach which I will outline for you. However, when I do the math, it seems too much has to come out for taxes each year to make much headway. I will start receiving social security in 2008. My desire is to Build my portfolio if possible, but at least to preserve it (inflation adjusted)

Total Cash Portfolio $1,400,000
Bucket #1 (for my income)
Social Security Income $19,000 yr.
Keep ONE rental Unit 8,000 yr.
$400,000 in Bonds etc. prod 6% 24,000 yr.
________
$51,000 y
Pot # 2
$400,000 in combination of Bonds, I-Bonds, Canadian Roy Trusts, Tips.
100,000 I Bonds No yearly tax till taken out or maturity
300,000 Balance at approx 7% $21,000 income

Pot #3
$600,000 in some combination of stock equities.
$300, 000 in Dividend funds (3%) $9,000 yr.
$300,000 other stock allocation $3,000 yr. (maybe 1% dividend – I don’t know)

That’s a total of $84,000 gross income including my social security and one rental unit.

In addition to this I will continue to have a salary from my business for the next few yrs. of about $45,000 (which will end when my lease is up at my store in four years)

So, that brings my taxable income up to $129,000 (for the next four yrs. anyway.)
With my conservative approach to investing, I do not want to tap more than 3% of portfolio per year for both income and to pay taxes., because I feel it will most likely not exceed 7% per year total return and then I must pay taxes on it. ( 3% of $1,400,000 =$42,000 yr.) That’s only leaving 4% in the kitty so to speak to deal with inflation.
$24,000 Income for me, leaving $18,000 to deal with tax liability.

1. One of my questions, is:
1.Should I stay away from the Dividend Stocks for my equity portion of my portfolio, because it increases my tax bases?
2. How tax efficient should I be thinking with my (No IRA or Roth) situation and state of mind.
3.How do you figure my tax liability with the above scenario?
4. Any recommendations for a better approach?

[Enuff2Eat]

Mod, You are one successful man. i would like to be in your shoes someday... where do u live? can i buy all of your property?? we will work out ONE deal that you won't have to pay too much in capital gain.

enuff

I am a little confused at your numbers. I read your post 4 times. It seems like you are mostly concerned with taxes. But I always say I would rather have a Large Capital Gain and pay the taxes, than a Large Capital loss and take the deduction!

Don't focus on taxes. What are your real concerns? - You have about 16 years until age 80. Hopefully you can enjoy life the way you want before then. I'd plan on doing things that are really important to you before then, otherwise they probably won't get done!

Let's cover the basics.

1.) How much do you want to spend each year?

2.) How much do you have?

[modhatter]

I am sorry for confusion. I will try and explain. My MAIN concern is preserving my capitol for my son (inflation adjusted).

That known,
out of the $1,400,000, I need $24,000 NET out of this portfolio to add to my social security income ($19,000 SS) and rental Income ($8,000 yr.)

Total NET income needed: $3,500 per month ($42,000 per yr). The only other money I will need to take out will be to pay taxes on entire portfolio.

So, out of the $1,400,000 - I need to take $24,000 plus what ever is needed to pay taxes. (only Federal) I am figuring $18,000 for Fed taxes, which would bring my total with draw from 1,400,000 a total of $42,000. (3% withdrawl)

I feel this is the maximum I can take out if I am only earning 7% total return on portfolio. Is this clear, or did I confuse you more?

The balance needed to make up my $3,500 Net income will come from Soc. Sec. and one rental.

[boont]

If you are worried about paying taxes you should not sell the real estate. That is the best tax avoidance vechicle I know of.

You could do a tax free exchange of your property into something a lot easier to manage or into a long term master lease with a pool of investors in something like a shopping center.

There are a lot of real estate options for income and tax avoidance. Talk to a real estate savey CPA.

boont

[tryan]

modhatter,

The last property I sold was a 30% donation to various state and federal organizations ... so I feel your pain.

I like the 1031 exchange to preserve equity. And you clearly have enough to generate the $42k needed.* How about selling the rental as a 1031 exchange into a new primary residence.* The new palace would have to be rented for a year to pacify the feds ... then you move in and live like a king in the new pad;* all the while preserving the loot (as home equity) for your son. Best part is, your current home can be sold tax exempt when you move.

Only other idea would be to hire a property manager to handle the tenant hassels.* Manager fees will run 12-15% of rents.* I did this for years and never knew the tenants I had ... but it's not cheap.

Good luck!

[PJ03]

Do you now have 1.4 mil in a portfolio or is that coming from the soon to be sold property.
If its coming from the soon to be sold property then you won't be paying a lot of tax on the 3% you will be taking from the 1.4 mil. Most of it will be your post tax money.

[cute fuzzy bunny]

Sell the best half of your properties for profit, then donate the other half to the fire department to burn down doing in the field exercises, deduct the donations from your sales.

Heck, I dont even know if that would work. But you gotta admit its creative. And I probably just planted a smile on your face at the thought of burning down half your properties...

[Brat]

Tax rates will surely be higher in the future. IMHO take the bite this year.

[modhatter]

Hi, everyone

To answer some of your questions, I sold two last year, and paid uncle sam about $60,000 for his share. *I have three left.

I do know about the 1031 exchange. *I have done it before, but that's just keeping the rentals going. *I would turn to a mgt. company if the net in the units were a little higher. *

These units are Townhomes in Florida, with VERY high Taxes and VERY high insurance costs and homeowner costs, leaving a very small Net (about $500 each for three units) *With a management company involved, my net would be reduced to $400 a month or less. *

That's not much for a $650,000 investment. *And this area (Palm Beach County) is one of those areas that has seen a radical rise in value, which may not be sustainable. *All leading to my thinking, I should sell now.

I am selling my home there also. *I could move into the larger TH for a while. *But I think the IRS says two of the last five years if my memory serves me right (which it doesn't most days) *and I don't know if that is possible. *I was planning to move to Baja, Mexico, which would be a six hour drive to my store in Californa. (Another reason for leaving Florida) *

If I do an exchange for a place in Arizona and declare it as a residense later, it will only obligate me to Az State taxes (about 5%), so that doesn't make much sense either. *Well, I guess there is no easy way out, as usual.

To answer another question, the $1,400,000 is the net I will have when I sell the remaining properties and my house. *I can be pretty accurate on what I will net on the townhouses. *The residense may fluctuate a bit. *But in any case that figure is after Uncle Sam, and all other expenses are paid.

[modhatter]

I just read over my post, the the Net on the townhouses now, is about $500 each ($1,500 total) Not $500 for the three. I would have been gone a long time ago!

[tryan]

Quote:

That's not much for a $650,000 investment. And this area (Palm Beach County) is one of those areas that has seen a radical rise in value, which may not be sustainable. All leading to my thinking, I should sell now.

Exactly why I've been a seller since 2000. Rents aren't worth squat (compared with the equity). TIPS would pay better.

Quote:

If I do an exchange for a place in Arizona and declare it as a residense later, it will only obligate me to Az State taxes (about 5%),

Most states follow the federal exemptions ... not sure about AZ but my guess is they will not tax a 1031 exchange.

[HardCharger]

Forget about stocks, they are for "chumps". Just buy mutual funds.

50% stocks, to make it easy.
1/3 Vanguard Total Stock Market Index
1/3 Vanguard International Index
1/3 Real Estate Fund
To diversify even more
take some of above and throw a bit in
Health Care, Energy, Convertibles

50% Bonds
Divide it up into
Intermediate Bond Funds
Emerging Market Bond Fund
High Yield Bond Fund
World/Int'l/Foreign Bond Fund

[Nords]

Quote:

Originally Posted by HardCharger Forget about stocks, they are for "chumps".* Just buy mutual funds.

Welcome to the board, HardCharger. I think.

I'm a bit conflicted. I buy individual stocks (as do some of the mutual funds you're recommending) and I've made much more money than I've lost. Some of the posters on the board have made quite a bit more money and even funded their ERs from individual stocks. So the "chump" characterization is at odds with our experiences.

OTOH, guys like you calling stock investors "chumps" will only tend to deflate some of the bubble around the P/Es of the frothier issues. That would reduce volatility and bring a healthy dose of realism to the markets.

On the third hand, driving all the "chumps" out of the stock market will only make it more difficult for us hard-working experienced investors to fleece them. So perhaps you can come up with a better term?

[MooreBonds]

Quote:

Originally Posted by modhatter I am selling my home there also. I could move into the larger TH for a while. But I think the IRS says two of the last five years if my memory serves me right (which it doesn't most days) and I don't know if that is possible. I was planning to move to Baja, Mexico, which would be a six hour drive to my store in Californa. (Another reason for leaving Florida)

If I recall correctly....the IRS says that if you don't meet the 2 years out of the last 5 years residency requirement for the $250k/$500k single/married capital gains exclusion, the amount is PRORATED based on the total time you live in it. So, if you just live in it for 1 year out of the last 5, then you would get up to $125k single/$250k married exclusion.

As always, if you go off of free advice from a 12 year old redneck in Kentucky posing as an adult you deserve the IRS penalties for wrong tax info check with a tax professional

[Martha]

Quote:

Originally Posted by Peter76 If I recall correctly....the IRS says that if you don't meet the 2 years out of the last 5 years residency requirement for the $250k/$500k single/married capital gains exclusion, the amount is PRORATED based on the total time you live in it. So, if you just live in it for 1 year out of the last 5, then you would get up to $125k single/$250k married exclusion. As always, if you go off of free advice from a 12 year old redneck in Kentucky posing as an adult you deserve the IRS penalties for wrong tax info check with a tax professional

There are a number of limitations as to when you can prorate the exclusion because you have lived in the home for less than 2 years.
Here is the IRS publication that applies: http://www.irs.gov/publications/p523/index.html

[HardCharger]

re: Stock Market Chumps - Investing in individual stocks is like playing Roulette, it is not investing, you have no idea what is going on in that company, sure if you've been investing in indiviual issues the last 3 yrs you've done well, everything is up bigtime, but for 99% or I think I am safe to say 100% of people, in the long run, investing in indivual stocks is not investing, but gambling. AND the worst thing you can do is win and then think you know something. You don't. Good luck and enjoy the "play". How are you, indiv stock investor, going to "beat the market" when geniuses with computers the sizes of rooms and staffs of geniuses under them, can't figure out how to do it, (except for a very, very few). So why fight it, why think you are going to be somehow smarter than the legions who don't have a fighting chance to beat the market. In an up market you will win, in a down market, you will loose.

[haha]

Quote:

Originally Posted by HardCharger re: Stock Market Chumps - Investing in individual stocks is like playing Roulette, it is not investing, you have no idea what is going on in that company, sure if you've been investing in indiviual issues the last 3 yrs you've done well, everything is up bigtime, but for 99% or I think I am safe to say 100% of people, in the long run, investing in indivual stocks is not investing, but gambling. AND the worst thing you can do is win and then think you know something.* You don't.* Good luck and enjoy the "play".* * How are you, indiv stock investor, going to "beat the market" when geniuses with computers the sizes of rooms and staffs of geniuses under them, can't figure out how to do it, (except for a very, very few).* So why fight it, why think you are going to be somehow smarter than the legions who don't have a fighting chance to beat the market.* In an up market you will win, in a down market, you will loose.

I always enjoy a seasoned, nuanced, respectful opinion. You will be* real asset to the board, HC!

Haha

[old woman]

I am also aiming for capitol preservation for my son. I just can’t take the rentals anymore. If I have to go into one more property to paint, clean up and repair, after the tenant moves out I think I’ll shoot myself.

Why not make your son do the work or hire someone? We have day labor around here for $8 an hour who will do pretty much any cleaning/painting/yard work. They aren't craftsmen so they may not be able to the repairs but they are great at just labor. Since you are preserving capital for your son offer to let him do the work to save more capital for him.

[Martha]

I believe his son is seriously disabled and that is why he is looking to preserve some assets to care for him.