Increased Risk for Landlords?

[scottpush]

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Originally Posted by jkern I have 3 rental properties and my wife has 1. So far all tenants are paid in full. The risk to being a landlord has increased exponentially. With the war on landlords there is a reasonable chance I'll be liquidating in the future.

+1. I owned 9 at the start of 2020. Sold 4 that year. Down to 5 now! Huge relief and I'm sure selling more would bring even more relief. Now where to put the money?

[scottpush]

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Originally Posted by Letj I have some issues with tenants taking advantage of the eviction moratorium. Thank goodness most continue to pay. My goal is to liquidate ASAP. I recently sold some I’ve held for a while and by the time I factor in capital gains, depreciation recapture, net investment tax and state capital gains tax, I am paying a massive amount of tax which is a huge disincentive to sell. What are you doing as landlords to shelter the gains? I’ve looked into opportunity zones, DSTs and 1031 exchanges but trying to do an exchange is tough in this seller’s market since the fundamentals don’t work and given that I am selling one at a time. I am renovating and selling so with 1031 exchange or DST, I can’t get any of my renovation cost out. Getting out of real estate investment held for a long time is not very easy.

I'm just selling as they move out. Paying the taxes with money I have set aside for just that. 1031s make no sense to me if you want to get out of the gig.

[marko]

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Originally Posted by BeachOrCity There has been a LOT of rhetoric about this pro and con. But frankly one just has to look at the data to understand that 10 months into this for the most (not all) part, tenants are NOT taking advantage of the forbearance even when legally they could. Kind of a nice statement about humanity.

BIL is an officer with a global bank/credit card company.
His view is the opposite: landlords are not getting paid but tenants are paying their credit cards to keep their credit scores intact.

Now, I'm not sure if he could be talking about corporate level renters; but that's his view as a banker.

[Kroeran]

One of the skills you pick up working in government policy is how to analyze and talk about politics, and political risk, very clear-eyed and coldly.

Political risk is emerging as a dominant factor in investment decisions but the culture has become too dysfunctional to discuss it, which is an existential risk for your portfolio.

You can be sure Fortune 500 boardrooms are having these discussions.

My personal view is that indebted governments, hungry grifter politicians, culturally ascendent marxist progressives, and geo political actors seeking to weaken the US role as international peacekeeper, are consorting and facing naive and crumbling resistance.

There are financial implications to this which need to be discussed.

I suggest a new sub group for political risk analysis and financial counter measures, very strictly moderated.

[MichaelB]

Politics kills civility and pushes all other thought to one side. ER Forum is and will continue to be a haven of civility where members can engage polite and friendly interaction and exchange. A forum or subgroup for politics cannot be effectively moderated and is not a consideration.

[REWahoo]

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Originally Posted by MichaelB Politics kills civility and pushes all other thought to one side. ER Forum is and will continue to be a haven of civility where members can engage polite and friendly interaction and exchange. A forum or subgroup for politics cannot be effectively moderated and is not a consideration.

Been there, done that, and have the scars to prove it.

[Letj]

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Originally Posted by scottpush +1. I owned 9 at the start of 2020. Sold 4 that year. Down to 5 now! Huge relief and I'm sure selling more would bring even more relief. Now where to put the money?

What have you done to avoid capital gains and depreciation recapture tax? I sold some as well but the tax is massive without a 1031 exchange or similar.

[Letj]

Just saw your reply. I hear you but the tax is hard to stomach when you’re selling as much as I am. Any experience with DST?

[pjigar]

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Originally Posted by Letj What have you done to avoid capital gains and depreciation recapture tax? I sold some as well but the tax is massive without a 1031 exchange or similar.

Not much you can do. The only thing you can do is to sell in a year where all other income streams are the lowest.


PS: You can do installment sell i.e. seller finance but it is a lot of hassle. DSTs are typically subpar investments.

[BeachOrCity]

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Originally Posted by marko BIL is an officer with a global bank/credit card company. His view is the opposite: landlords are not getting paid but tenants are paying their credit cards to keep their credit scores intact. Now, I'm not sure if he could be talking about corporate level renters; but that's his view as a banker.

There is data. Rent collections are barely down. This covers managed apartments nationwide
IMG_0001.jpg

[ivinsfan]

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Originally Posted by Kroeran One of the skills you pick up working in government policy is how to analyze and talk about politics, and political risk, very clear-eyed and coldly. Political risk is emerging as a dominant factor in investment decisions but the culture has become too dysfunctional to discuss it, which is an existential risk for your portfolio. You can be sure Fortune 500 boardrooms are having these discussions. My personal view is that indebted governments, hungry grifter politicians, culturally ascendent marxist progressives, and geo political actors seeking to weaken the US role as international peacekeeper, are consorting and facing naive and crumbling resistance. There are financial implications to this which need to be discussed. I suggest a new sub group for political risk analysis and financial counter measures, very strictly moderated.

If you know how to do all this and save the world, after you finish on that project you should get a job herding cats.

[Letj]

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Originally Posted by pjigar Not much you can do. The only thing you can do is to sell in a year where all other income streams are the lowest. PS: You can do installment sell i.e. seller finance but it is a lot of hassle. DSTs are typically subpar investments.

Thank you. Great advice and very much appreciated.

[Joylush]

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Originally Posted by scottpush +1. I owned 9 at the start of 2020. Sold 4 that year. Down to 5 now! Huge relief and I'm sure selling more would bring even more relief. Now where to put the money?

I’ve sold three a year starting in 2018, so down 10 with 24 left.

I still feel like I haven’t gotten anywhere because that’s still way too many but even with good tenants I’m done after what the government pulled on landlords this year.

And no matter how well you maintain them or the fact you cut no corners with repairs and maintenance it’s still never ending.

I was out of town for four months recently and just during that time we had a tornado come through resulting in two fences needing repairs. Another house had a plumbing pipe in a block wall deteriorate and fall apart leaking inside the wall, two different plumbing clogs, and some interior ceiling water intrusion caused by blowing rain coming in through a gable vent. Oh, and a shower valve needing replacement and a clogged AC drainline. So 8 calls during my four months of being out of town.

Nothing earth shattering but I want to be more retired.

The tax hits have been terrible but there is no way around that.

[Maidensong]

According to Forbes almost half of all the nation's landlords are "mom & pop's", owning 10 or fewer units. Count us among them. We bought our first duplex in 2010, the remaining 4 in 2012, for a total of 10 residential units and 4 storage units. They've all been paid for since the DH semi-retired in 2014 (completely RE in 2015). Rent has provided the lion's share of the money we've lived on since 2015 along with some from our savings. We're letting the IRA just grow. We're both on FRA SS as of last fall, so that takes a lot of pressure off the rentals, but we still want a decent return for our investment. The DH figures we had 14% ROI in 2021, pre-expenses (taxes, insurance, upkeep & repairs). After expenses, we dropped to 10.5% ROI. (We own a couple of stocks that didn't do that well this year!) We feel fortunate in this time not to have a mortgage.

When Covid first hit, one of our tenants who'd been with us almost as long as we'd owned the unit, lost his under-the-table job as a cook at a local greasy spoon. We asked if he could make half the rent, and he jumped at it. Paying half made it feel like we were in this together. Then he got a real job at another restaurant and became an actual taxpayer. He realizes now that he was short-changing himself by not having an on-the-books job. He's paid on time and in full since last April.

Some of our other tenants received emergency assistance from a local entity dispensing government funds. This was usually help getting their utilities current and a couple received enough to pay back-rent that was owed. We've only had to write off $1300 in unpaid rents since the virus hit.

We do have one tenant we are in the process of evicting. (Yes, it is still happening in the rural area of the admittedly red state we live in. Not trying to be political, just explaining the facts on the ground.) He has been letting unrelated people come and stay in his unit against our wishes and the wording of his lease. Several of our other tenants have expressed concern that there is drug activity going on, comings and goings at all hours. He refuses to pay his utility bill (even during the month when his rent was paid by that local charity, he couldn't be bothered to pay for heat and light!) We had to run to the City office to pay it so the heat could be turned back on and the pipes saved. He works. He just doesn't want to be responsible enough to pay. He's not covered by any anti-eviction mandate. We can't lose our good tenants because he and his unwelcome guests are scaring them. He has to go. He's received his 30 day notice to quit. The next stop (on Monday) is our attorney and a court date. It may still take another month, but we will regain our property.

But for the most part, our tenants are hard-working folk who appreciate a well-kept place to live. We work with them and they work with us. We never have trouble filling a vacancy. We have a reputation for making improvements and quick repairs. A week doesn't go by without receiving a call asking if we have anything available.

We have no plans to sell and hope to leave the rentals to our kids. But we are getting more picky about who we rent to. No discrimination here. We have rented to all racial, ethnic and sexual orientations. We have a reformed (non-violent) felon or two. We only consider green. We require our tenants to have income of 3 times the amount of rent so they won't be rent poor. We require a minimum credit score of 600. And if we have more than one applicant, we give extra consideration to prospective tenants with "essential" jobs. (Seriously, in these times, wouldn't anyone rather rent to a nurse?)

So far in our state, those are still legal criteria for us to use in deciding who gets to move into our properties. The rules could change. If they do, we'll change with them.

But I expect to die a landlord. Month over month, the reward for the risk is just too good.

[captain3d]

Just heard from my (Ohio) property manager that one tenant has in fact just been evicted. Not sure of the details but obviously they are being processed to some degree.

[Sunset]

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Originally Posted by Maidensong ..... We do have one tenant we are in the process of evicting. .... He's received his 30 day notice to quit. The next stop (on Monday) is our attorney and a court date. It may still take another month, but we will regain our property. ... But I expect to die a landlord. Month over month, the reward for the risk is just too good.

Appreciated reading your historical experience.

Great ROI (are you including price appreciation in that, or just actual cash) ?

Here is hoping your evicted tenant is going to leave the place without trashing it.

[Mr. Tightwad]

http://www.youtube.com/watch?v=y409FQGbBrQ

I only have 3 tenants at this time, but this is how I think my conversation with my banker will go.

[Maidensong]

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Originally Posted by Sunset Appreciated reading your historical experience. Great ROI (are you including price appreciation in that, or just actual cash) ? Here is hoping your evicted tenant is going to leave the place without trashing it.

Actual cash outlay to acquire the properties relative to the yearly gross and net return. I'm sure they've appreciated in value, but since we can't live on appreciation, I don't think about it. Our rents have gone up over the years too.

I'm sure we'll have to do some repairs once our tenant is out, repainting and deep cleaning. We have replaced all the carpet with high quality laminate and tile flooring so it usually cleans up well. We have a good list of tradesmen who do work for us on our places. If the evicted tenant damages the place, we are thoroughly insured against malicious vandalism and will even be reimbursed for lost rent while the repairs are made. There's nothing to be done criminally, even though we've had tenants steal major appliances. The police take the report and shrug. But if the damage is extensive enough, we are covered.

[Tekward]

A sad example: https://newyork.cbslocal.com/2021/01...on-moratorium/


Dozens of independent landlords say their tenants have been taking advantage of the COVID eviction moratorium. CBS2’s Natalie Duddridge spoke to two elderly New Yorkers who are desperate for help. They say the state law is draining them of money they need to survive.

[RetireeRobert]

OP, yes eviction bans have increased risks to landlords for rental real estate.

I would not put any money into rental houses.