How many are Real Estate investors/landlords?

[CaliKid]

As someone that used to spend a lot of time looking at those net leased properties, particularly chain retail, drug, and restaurant properties, I have to laugh. When companies like K-Mart and Circuit City first showed signs of weakness, suddenly their store properties showed up as high quality absolute net investments on LoopNet. Can't remember specifically who did this, but raising capital through sale leasebacks was a common strategy. You could kind of predict the failure 12 to 18 months later... The name brand drug stores were similar, although it was usually a property owner selling. The property would sell, and the location would close within a year or two. All of a sudden, you had an empty building with the retailer paying the minimum base rent instead of a percentage of gross sales. Nothing like a vacant building you don't control that may or may not get subleased to a less than desirable tenant.

I will take the management hassle of dealing with smaller tenants, particularly NOT retail tenants, over those breathtakingly low cap rates for so-called credit tenants and their mailbox money.

I agree. I was looking at some of these a couple years ago when I had some play money to invest. It appears to me that stores like Dollar General and similar just build stores to sell and lease back. To me Amazon will eventually make them obsolete and you end up with a huge building in some small town somewhere. 7 or 8% on it's face but I think in reality would be significantly lower.

 

[Fishingmn]

Currently own 10 - 8 townhouses and 2 condos. No issues so far with payments. I've never had to do an eviction in 9 years of owning properties.

I did have a tenant move out of condo in June and am remodeling it to sell (tenant used me to buy a house so made $6k commission). My other condo will be vacant at the end of August and I plan to sell that one too. That gets rid of my 2 oldest units with the more challenging HOA's.

The 8 remaining units kicks off well over 1/2 the income we need in retirement. DW is retired and I'm semi-retired. Real estate keeps me working 5-10 hours per week.

 

[xmanz3]

1 SFH, 1 Townhome, 2 condos and 1 beach vacation rental.

No issues with rental payments during COVID and only 1 eviction in 15 years.

The key is: LOCATION, LOCATION, LOCATION. Great equity on each property and let those tenants pay off the mortgages.

 

[socca]

Poll Option: Own property as appreciating land or farmland.

• What if the property is declining in value?

• Lumping an investment in raw land and farmland (either cash-rented or crop-shared) in the same category is rather odd. These are two very different animals.

Roughly 1/3 of my gross income is from crop-shared American farmland. I like the asset diversification that farmland provides, and the biz is also an endless topic for discussion among family members. Greedy speculators tend to avoid farmland as an investment, which is nice. Sometimes boring is good!

 

[BeachOrCity]

Hi BorC. Our current vacation home was purchased in '96 and never rented nor depreciated. We use it every weekend. The industrial property was purchased in '90 and rented/depr since then. I was told that if we rented for at least 2 years and then made it our primary residence the cap gains tax due would go away. What is OF Manse?

OF = OceanFront
Manse = Mansion

Sorry for the sarcasm

So if you changed your domicile to your vacation home, you could get the exemption up to 250/500 after 2 years on that one.

You can still 1031 the industrial, there is an interesting wrinkle on that one. When calculating the proration years before 2007 count as personal use, not rental. But it was industrial not residential real estate. If you could do the proration across all the years and count 1990-2007 as personal then alot of it would qualify for the exemption.

I would tell you to talk to your tax person, but they fact that s/he said just two years and it all goes away gives me pause to suggest that. But given the length you owned it, the proration could work well in your favor.

Hope this helps. Oh, and the 2007 I mentioned above is really like 2008 / 2009.

See this article:
https://www.nolo.com/legal-encyclop...-rental-property-your-personal-residence.html

 

[CaliKid]

Currently own 10 - 8 townhouses and 2 condos. No issues so far with payments. I've never had to do an eviction in 9 years of owning properties.

I did have a tenant move out of condo in June and am remodeling it to sell (tenant used me to buy a house so made $6k commission). My other condo will be vacant at the end of August and I plan to sell that one too. That gets rid of my 2 oldest units with the more challenging HOA's.

The 8 remaining units kicks off well over 1/2 the income we need in retirement. DW is retired and I'm semi-retired. Real estate keeps me working 5-10 hours per week.

You mention a key issue " That gets rid of my 2 oldest units with the more challenging HOA's." I am selling a property when the current lease is up as it's a condo and the HOA board is a NIGHTMARE. Literally psychotic people who have a little bit of power for the first time in their lives. Really scary.

 

[ERD50]

Originally Posted by Jerseytunahunter View Post
.... I was told that if we rented for at least 2 years and then made it our primary residence the cap gains tax due would go away. ...

.... I would tell you to talk to your tax person, but they fact that s/he said just two years and it all goes away gives me pause to suggest that. But given the length you owned it, the proration could work well in your favor. ...

See this article:
https://www.nolo.com/legal-encyclop...-rental-property-your-personal-residence.html

Yes, I'd suggest anyone in this position dig a little deeper, and not simple accept what you think a pro told you (they may be right, but there may be a communication gap).

I've started looking into this for the family of an extended family member. The husband passed unexpectedly, and they have a rental property (that they lived in many years ago). There's been discussion of the widow selling the primary residence and moving back to the rental.

And as that NOLO article points out, cap gains are one thing, but depreciation recapture is another. This family has probably depreciated most/all of the original purchase price (I don't really know much of the details on depreciation, but I think that's ballpark). It appears the depreciation recapture (taxed at 25%!) is a major player, none of it is reduced by the time using it as a personal residence.

Bottom line, do your homework, there are a lot of ifs, ands and buts in there.

-ERD50

 

[calmloki]

A nifty feature is that the IRS doesn't care if you took the depreciation while it was a rental or didn't - they recapture as if you did. period.

 

[Octogirl]

DH and I have a SFH rental (paid for) and tenants have not missed any rent payments. They are good tenants, meaning very few calls and only when it is important



Also own 20% of a commercial real estate property with 6 tenants, all rents paid. Best small biz is a Bike shop whose biz has almost doubled in this pandemic.



Partial owner of family vacation home but its more of a money pit !!

 

[ut2sua]

A nifty feature is that the IRS doesn't care if you took the depreciation while it was a rental or didn't - they recapture as if you did. period.

I didn't know this ^^^
I was thinking/guessing the IRS would allow me to subtract unused depreciation. Guess I was wrong.

 

[calmloki]

I didn't know this ^^^
I was thinking/guessing the IRS would allow me to subtract unused depreciation. Guess I was wrong.

My understanding, but verify.
Here's other guys on the internet:
https://ttlc.intuit.com/community/i...reciation-on-my-schedule-e-line-18/00/595103#

 

[Cobra9777]

...And as that NOLO article points out, cap gains are one thing, but depreciation recapture is another. This family has probably depreciated most/all of the original purchase price (I don't really know much of the details on depreciation, but I think that's ballpark). It appears the depreciation recapture (taxed at 25%!) is a major player, none of it is reduced by the time using it as a personal residence...

Just to clarify, unrecaptured Section 1250 gains (aka, depreciation recapture) are taxed at a maximum federal rate of 25%. It's taxed at ordinary income rates up to a maximum special capital gains rate of 25%. To the extent an unrecaptured Section 1250 gain falls into the 10%, 12%, 22% or 24% bracket, it gets taxed at that rate.

The details are in the tax worksheet in the instructions for Schedule D. Trying to understand that worksheet can be a mind-bending experience. But if you work through a simple example, it is clear that the recapture is taxed at ordinary rates up to a maximum special CG rate of 25%.

The nolo piece linked above is wrong; it is not a flat 25% tax. That's a fairly common misunderstanding which seems to spread like a virus across the internet, usually by CPA firms and lawyers who want to make it sound really big and scary, beyond the comprehension of mere mortals... presumably as a strategy to drum-up business.

I've sold two rentals with unrecaptured Section 1250 gains. I never paid anything close to 25% on the recapture, nor the balance of the gain for that matter, which is taxed at normal CG rates based on ordinary income.

 

[ERD50]

Quote:
Originally Posted by ERD50 View Post
...And as that NOLO article points out, cap gains are one thing, but depreciation recapture is another. This family has probably depreciated most/all of the original purchase price (I don't really know much of the details on depreciation, but I think that's ballpark). It appears the depreciation recapture (taxed at 25%!) is a major player, none of it is reduced by the time using it as a personal residence...

Just to clarify, unrecaptured Section 1250 gains (aka, depreciation recapture) are taxed at a maximum federal rate of 25%. It's taxed at ordinary income rates up to a maximum special capital gains rate of 25%. To the extent an unrecaptured Section 1250 gain falls into the 10%, 12%, 22% or 24% bracket, it gets taxed at that rate.

The details are in the tax worksheet in the instructions for Schedule D. Trying to understand that worksheet can be a mind-bending experience. ....

Yeah, it was bound to be far more complicated than my little blurb covered. It's disappointing to me that NOLO didn't cover it better, they're among the better sources out there, IMO. Thanks for the more detailed analysis.

-ERD50

 

[ut2sua]

Just to clarify, unrecaptured Section 1250 gains (aka, depreciation recapture) are taxed at a maximum federal rate of 25%. It's taxed at ordinary income rates up to a maximum special capital gains rate of 25%. To the extent an unrecaptured Section 1250 gain falls into the 10%, 12%, 22% or 24% bracket, it gets taxed at that rate.

The details are in the tax worksheet in the instructions for Schedule D. Trying to understand that worksheet can be a mind-bending experience. But if you work through a simple example, it is clear that the recapture is taxed at ordinary rates up to a maximum special CG rate of 25%.

The nolo piece linked above is wrong; it is not a flat 25% tax. That's a fairly common misunderstanding which seems to spread like a virus across the internet, usually by CPA firms and lawyers who want to make it sound really big and scary, beyond the comprehension of mere mortals... presumably as a strategy to drum-up business.

I've sold two rentals with unrecaptured Section 1250 gains. I never paid anything close to 25% on the recapture, nor the balance of the gain for that matter, which is taxed at normal CG rates based on ordinary income.

Thanks for pointing this out. I think you are correct that many written articles out there mentioned the 25% recaptured tax without giving the full picture thus giving the impression that the 25% rate is regardless of the income level.

 

[FIREd]

About 2/3 of my NW is in real estate (no mortgages). It's a mixture of residential (condos), commercial (office space), and land (farmland and forests). The residential and commercial properties give me regular income (no delinquency so far) while the land is my "lottery ticket". It is currently classified as "agricultural" but it borders a fast growing population center. If one day it is reclassified as "residential", the price would go up 100x overnight.

 

[street]

About 2/3 of my NW is in real estate (no mortgages). It's a mixture of residential (condos), commercial (office space), and land (farmland and forests). The residential and commercial properties give me regular income (no delinquency so far) while the land is my "lottery ticket". It is currently classified as "agricultural" but it borders a fast growing population center. If one day it is reclassified as "residential", the price would go up 100x overnight.

Yes. That is a great investment avenue. It worked well for me if you can get it in the right price range.

 

[Winemaker]

About 2/3 of my NW is in real estate (no mortgages). It's a mixture of residential (condos), commercial (office space), and land (farmland and forests). The residential and commercial properties give me regular income (no delinquency so far) while the land is my "lottery ticket". It is currently classified as "agricultural" but it borders a fast growing population center. If one day it is reclassified as "residential", the price would go up 100x overnight.

Our rental SFH is 300' from the local hospital and during the court required county property reassessment, its designation went from "residential" to "medical". Taxes went from $679/year to $1980/year. Hopefully the resale value will go up that same rate.

 

[MrsHaloFIRE]

We own one rental SFH. Tenant has been paying but it seems later every month. Unless prop mgmt co is holding the rents for cash flow (?) If other tenants they !manage aren't paying, prop mgmt not getting paid for them.

 

[SJ1_]

Really have no idea what percentage of the early retirement crowd are invested in real estate other than their home - so here's an attempt at a poll. Feel free to check as many of the options as apply and if you gotta then fill us in on why your choices are the best in the whole wide world - for you. This is a chance for us real estate junkies who don't know where to put our investment in Firecalc to see that there are a few property mavens out there.

Had 2 homes 9.2002 to 2.2020 we ended up moving into our vacation home
currently down to 1 rental home , same tenant 19 years
Had around 10 at one point.
Never really had a problem.
One person was "so great" that we didn't run a credit check. Was only tenant that we ever evicted.
For our lifestyle we have all the money we need and it seemed tenants left when we wanted to go on vacation is the reason we got out of it.
For the money we made it was easy work but it is one of the few things
that im good at (being a landlord)

 

[2cheap2eat]

I have two SFH’s that I plan to keep well into retirement. I’m probably 7 years from FIRE, so I’m actually looking for one or two more SFH’s.

Unfortunately in Texas, house prices have skyrocketed. Hard to find SFH investment properties right now (the low interest rates have driven up demand).

 

[Retired Expat]

One tenant was furloughed from his job. Asked for and received a 20% discount for 3 months and is back to work and full pay. Another asked to break his lease and paid until a new tenant was signed. Basically he gave notice on the 5th and new tenant was in the 1st of the following month. Nothing lost Beyond the cost ps involved in signing up the new tenant.

The AirBnB which is the vacation home is doing unbelievable business!

 

[Maidensong]

We have 5 duplexes--10 units. Owned since 2012 and all paid for in full. The monthly cash flow is great. We maintain them as if we had to live in them ourselves, so we're getting a reputation in our town for being very responsive landlords. We get calls almost every week from people hoping we have an available unit or one coming up.

We've had to do 2 evictions, one because the tenant who was in the unit when we bought the duplex had her two adult sons return home to live with her and then she moved away without telling us, leaving her drug-dealing devil's brood in possession of our property. Befriending lawyers and law enforcement ensued. They destroyed the place before they left and it cost around $35K to bring it back to our standards. Fortunately, our insurance covered the bulk of this since law enforcement ruled the damage malicious. The other eviction happened because we were stupid and gullible and thought we could tell when someone was lying to us. We chased this couple for chronically late rent for a couple of years and finally got tired of their ridiculous excuses. Interesting side note: All the tenants we evicted are now doing time either in prison or the local jail.

Now we thoroughly vet applicants for credit and criminal history and usually have multiple candidates to choose from. We are kind, but firm and begin as we mean to continue. We charge a $25 late fee and the first time it happens, we tell the tenant if it happens again, we'll start eviction proceedings. We're not going to chase anyone for rent anymore. We'd rather hire an attorney and get them out. It's less stressful. The firm no late clause works. Case in point. Our newest tenants were late in their 2nd month with us. We explained our late rent policy and they've already paid for August a week early.

My heart goes out to landlords who find themselves in areas where a "rent holiday" and eviction moratorium have been imposed. It's not fair. At the same time, we try to be aware of our tenants' situations. The one who's been with us the longest lost his job at the beginning of the Covid-19 shutdown. We offered to forgive the rent, but he only needed 1/2 of one month's grace before unemployment kicked in. All our other tenants are in essential positions.

We appreciate our tenants very much.

 

[HaveEnough]

Most of my Networth is in real estate notes, none of the above listed real estate classes. I kind love that, means that I am still a niche player. I hold the first position lien and deed of trust on fix and flip properties. Just sold my last 5 rentals, had a 20% cash on cash return on these over the years, but is was small money. The lending market is a great place to make some good returns, In great stock market years, I underperform, but in bad market years I don't loose money.

 

[FIREarly]

As someone saving for first investment property down payment:
-how much work is the first investment property while working full-time (40hr/wk)?
-Do you use a management company or do they take too much money and it's manageable?
-STR or LTR?
-Was your first investment property your previous primary residence?

 

[HaveEnough]

My first investment property was a previous primary residence.
I used property management companies for the others, it is still work managing the manager. A bad one will rip you off, fees for everything, don't care about your money only profit.
Mine were all long term.
I owned mine while still working, with the management company it was not difficult, just have to watch every bill, every repair and give them as short a leash as possible. For example, they will want a $300-$500 repair amount that they will not call for and it is automatically approved. I had a management company break up a plumbing bill into two so they did not need approval. I have also had three of these on the same property in a month.