Advice needed on selling house

[veganbetty]

Hi all, I've never posted a new thread so excuse any newbie errors I may make. We have a house that we rent out. It is actually two houses with main house and apartment above the garage. We cover our mortgage and other expenses and make about $2-2.5K per month. We have about $750K (less commission) in equity. We were planning on keeping it for ten years and then selling it preferably to clear about $1.1M (less commission and expenses). We are just wondering if it might be better to sell now and invest in the market. What would you all do? Thanks in advance for your invaluable expertise!

 

[pb4uski]

Dunno, but selling and reinvesting are separate decisions IMO.

I'm not keen on the concentration risk of most real estate, but it works out well for mny people.

 

[bearkeley]

Some things to consider: 1) how sure are you that value of your home will continue to appreciate and if so, at what rate relative to investing what you actually gain if you sell today? 2) what will your tax consequence be relative to capital gains on your primary residence and rental income? 3) where would you live if you sold? We are at a stage in our life currently where we would prefer an easy lifestyle and splitting our time between traveling the world, traveling locally in a van or a boat and a beachfront condo over a house and managing rentals. 10 years ago, we were still focused on maximizing income to retire before 50.

You’ve come to the right place....we couldn’t have done it without advice from the folks here. Good luck!

 

[ducky911]

I would love to sell my paid off rentals, owned 20+ years....cpa says I will pay about 30 percent sales price in tax fed/state california

So I have to compare: profit and appreciation on 100% home value....to 70% after tax in the stock market

 

[veganbetty]

Thanks for the responses. We are pretty sure in its appreciative value as it's in Los Angeles which has historically fared quite well. We already don't live there and don't really want to move back to it so that's not a concern. The tax consequences are definitely of concern since it would be well over $500K in net profit but we did just start renting it out this year and I forget what those rules are. I completely agree on wanting things to be easier though so far, the tenants have been super easy.

 

[bearkeley]

Thanks for the responses. We are pretty sure in its appreciative value as it's in Los Angeles which has historically fared quite well. We already don't live there and don't really want to move back to it so that's not a concern. The tax consequences are definitely of concern since it would be well over $500K in net profit but we did just start renting it out this year and I forget what those rules are. I completely agree on wanting things to be easier though so far, the tenants have been super easy.

If you decide to keep it as a rental, consider 1031 exchanges and DSTs when you do sell. There is also talk of the feds eliminating home sales exclusions but nothing new. Just be aware or it will cost you dearly.

 

[bearkeley]

I would love to sell my paid off rentals, owned 20+ years....cpa says I will pay about 30 percent sales price in tax fed/state california

So I have to compare: profit and appreciation on 100% home value....to 70% after tax in the stock market

Have you looked into 1031s and DSTs? My CPA didn’t know much about it but it has allowed us to retire before 50.

 

[pb4uski]

.... We already don't live there and don't really want to move back to it so that's not a concern. The tax consequences are definitely of concern since it would be well over $500K in net profit but we did just start renting it out this year and I forget what those rules are. I completely agree on wanting things to be easier though so far, the tenants have been super easy.

Was this property previously your principal residence? If so, how long did you live there and when did you move out?

 

[ivinsfan]

Thanks for the responses. We are pretty sure in its appreciative value as it's in Los Angeles which has historically fared quite well. We already don't live there and don't really want to move back to it so that's not a concern. The tax consequences are definitely of concern since it would be well over $500K in net profit but we did just start renting it out this year and I forget what those rules are. I completely agree on wanting things to be easier though so far, the tenants have been super easy.

Just starting renting it this year, did you live there in the past? As far as rules if you had lived there long enough and sold it instead of renting you could have a tax free gain. I suggest you get acquainted with the tax rules before you do anything.

 

[TrvlBug]

Thanks for the responses. We are pretty sure in its appreciative value as it's in Los Angeles which has historically fared quite well. We already don't live there and don't really want to move back to it so that's not a concern. The tax consequences are definitely of concern since it would be well over $500K in net profit but we did just start renting it out this year and I forget what those rules are. I completely agree on wanting things to be easier though so far, the tenants have been super easy.

It's been 10+ years since we sold our rental so am not familiar with the details, but if you've only started renting it out this year and assuming you've lived in it the required time, your tax bite should be minimal I would think. Definitely worth looking into.

 

[veganbetty]

Yes this was our previous residence for 16 years and we just moved out this year. The rules (that I just looked up) are a tax exclusion of $500K for a married couple if they've lived there two years in the past five years. So we would qualify and in that case wouldn't need a 1031 unless we decided to hold it for five years or more. There's also the annual rental returns ~$25K in net that I should factor into the decision.

The 1031 exchange would certainly be helpful if we decide to hold onto it after 5 years. This is a toughie.

 

[ivinsfan]

Yes this was our previous residence for 16 years and we just moved out this year. The rules (that I just looked up) are a tax exclusion of $500K for a married couple if they've lived there two years in the past five years. So we would qualify and in that case wouldn't need a 1031 unless we decided to hold it for five years or more. There's also the annual rental returns ~$25K in net that I should factor into the decision.

The 1031 exchange would certainly be helpful if we decide to hold onto it after 5 years. This is a toughie.

I'd sell it and take the tax free money....why did you ask if you should sell, if 500K tax free gain isn't a big enough incentive what would be?

 

[veganbetty]

Absolutely, a huge tax free gain and a no brainer except that it can be mitigated by a 1031 exchange in the future and/or waiting a few years.

 

[ivinsfan]

Absolutely, a huge tax free gain and a no brainer except that it can be mitigated by a 1031 exchange in the future and/or waiting a few years.

Well do you want to be in or out of extra real estate, that's the question. 1031 means you stay in and the huge tax free gain means you don't have to stay in.

When you figure that out you'll be able to proceed. Don't have blinders on about the bubble in CA real estate.

 

[veganbetty]

Yes I'm definitely concerned about the RE bubble. I've been reading that it could even pop by next year.

 

[Bruceski44]

You can sell, take the tax-free profit and still invest in DST or other passive real estate. I just read today that multi-family, industrial, and medical rent collections are all >90% so far this year.

 

[pjigar]

If you moved out within last two years then you may be able to get most of the gain out tax free. If you qualify then selling would be better option. That's what I do, primary homes get sold tax free every move. I buy rental homes from the gains with better leverage.

 

[nwsteve]

Yes this was our previous residence for 16 years and we just moved out this year. The rules (that I just looked up) are a tax exclusion of $500K for a married couple if they've lived there two years in the past five years. So we would qualify and in that case wouldn't need a 1031 unless we decided to hold it for five years or more. There's also the annual rental returns ~$25K in net that I should factor into the decision.

The 1031 exchange would certainly be helpful if we decide to hold onto it after 5 years. This is a toughie.

We have rental property and have looked at 1031s before and while they are straightforward, they are not "simple" . Lots of rules and you MUST find your reinvestment property and close within a year (?) of sale of your existing property.
We decided to bite the bullet and pay the tax and spend our time on more enjoyable activities ;-)