Sell apartment buildings or keep forever?
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Stormy Kromer
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I have a significant piece of real estate in my NW. It is a farm, including a house & outbuildings. I'm in the process of selling the house & outbuilding portion. I will keep the farmland since it returns about 4% annually and is very low maintenance. The house & buildings are a money pit. One downside to real estate that I see is that it can create a head ache in an estate. I have see many, many families torn apart when there is real estate in a will. One heir wants to sell, one wants to buy and one wants to hold onto it, this makes it is hard to impossible to please everyone. Do you want to leave this real estate investment to your heirs?
38Chevy454
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That right there is the key. OP even said that the rentals limit travel and ability to leave town. OP already made good money on them, it's OK to take the profits and get out. Sell now with a hot seller's market, invest the money and take the extra income to travel or buy nice things. Enjoy the time freedom.
Mr. Tightwad
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I put in about 2 hours of yard work a month and collect $4850 in rent. The yard work gives me exercise and vitamin D. When I'm too old to deal with it I'll hire a gardener.
One duplex is valued at a third of my NW. I didn't set out for that to be the case, property values have soared is the reason.
One duplex is valued at a third of my NW. I didn't set out for that to be the case, property values have soared is the reason.
pb4uski
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I'm guessing that is not her reason... or even part of her reasoning.
SmallCityDave
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pb4uski
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It might be that having 1/3 of your NW tied up in a property is part of it too.... a bigger part than the 2 hours of year work.
Winemaker
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I have been in the rental business for 21 years, starting out as a side gig, then for ~6 years as a retired 62 year old. My rentals take up no more than 2 hours a week doing yard work and a occasional repair. We gross about $4800/month, no mortgages on 3 units, but are partially financed through our own home mortgage, to get a lower rate. We tend to have nice properties and keep them maintained; resulting in long term tenants. We have tenants for 20, 16, 15, 7, and 5 years. Never had a call for a stuffed commode at 3 AM.
It's not a business for everyone, but I'm 6' 5", 230#, and was a supervisor/engineer in coal mines for 35 years. Perhaps I'm very self confident, and don't take crap, and have many single parents of various colors that like the fact that my wife and I provide clean, safe affordable housing. But they coin money, to say the least, and we have forgiven about $10,000 worth of rent away over the years, when $hit goes the wrong way sometimes for people. I do 100% of the maintenance myself and hire out the flooring, and roof work, I'll do the carpet unless I'm in a hurry.
At the present time I plan to keep my rentals til I croak. My DD and SIL live close by and will gradually bring them into the business, as they have seen how it is done and how we have benefited from it. They have expressed an interest in it, and perhaps I will pay them about the same as my yearly depreciation to be property managers, once my 27.5 years are up.
Until this year, we have traveled 6-8 times, our longest time away was 18 days. The rentals don't hold us back, our vegetable garden does. My wine making hobby requires me to be home when the grapes are being picked. We get our California grapes here in PA, less than 48 hours after being picked and that starts from late August to late October.
My 3 properties are in the same county, but not same town. They make up 20% of our NW, and have been very, very good to us. We have made money, it keeps me engaged with other people outside my social circle, gives me exercise for my mind and body. It has been a blessing to us to be able to provide this service to the communities they are located. Right now, I'm keeping mine forever.
It's not a business for everyone, but I'm 6' 5", 230#, and was a supervisor/engineer in coal mines for 35 years. Perhaps I'm very self confident, and don't take crap, and have many single parents of various colors that like the fact that my wife and I provide clean, safe affordable housing. But they coin money, to say the least, and we have forgiven about $10,000 worth of rent away over the years, when $hit goes the wrong way sometimes for people. I do 100% of the maintenance myself and hire out the flooring, and roof work, I'll do the carpet unless I'm in a hurry.
At the present time I plan to keep my rentals til I croak. My DD and SIL live close by and will gradually bring them into the business, as they have seen how it is done and how we have benefited from it. They have expressed an interest in it, and perhaps I will pay them about the same as my yearly depreciation to be property managers, once my 27.5 years are up.
Until this year, we have traveled 6-8 times, our longest time away was 18 days. The rentals don't hold us back, our vegetable garden does. My wine making hobby requires me to be home when the grapes are being picked. We get our California grapes here in PA, less than 48 hours after being picked and that starts from late August to late October.
My 3 properties are in the same county, but not same town. They make up 20% of our NW, and have been very, very good to us. We have made money, it keeps me engaged with other people outside my social circle, gives me exercise for my mind and body. It has been a blessing to us to be able to provide this service to the communities they are located. Right now, I'm keeping mine forever.
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calmloki
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
So back when I was in my late 50's we had been buying/fixing/renting apartments and small houses for 25 years or so. We'd hit a meaningless goal of having as many units as I had years - 54 - and I pretty much had it down. Did books and calling in the morning and then would do a very efficient loop to show/rent units and deal with problems and maintenance. Knew all the tenants well and was pretty pleased. Did think that my level of care had probably hit a sweet spot at 45 units, but sure couldn't argue with the income. All the places got paid off. We decided to sell 'em all, then thought maybe selling a place/year would be smarter. Sold two little houses on a big lot and then it was 2008.
Uh oh.
Spent a year selling another little house and decided that the rent coming in was way too good to give the places away. Kept stacking up cash as various crisis hit the financial and real estate markets. Bought a winter house. Kept getting older. Heart tried to quit but the Gal wouldn't let it. Sold a 5-plex and a few more houses. Gave a 7-unit to a guy who has been very helpful with the rentals for years now. Down to 36 units now but am 70 years old.
For me, 50 was peak ability and 60 was still plenty canny and physically able, but not for sustained day after day work. 70? I don't want to, my mind isn't as capable, and my physical ability is paltry - and we still have 36 units bringing in more than the 54 were.
We have some real estate agents offering plenty of money for the remaining places, but dealing with the hassle of sale is exhausting. Buying is a piece of cake; selling is a major psychic drain. There are people we care about whose income would be affected by us selling. Pass on the rentals at our deaths? Wonderful step-up in basis, but we would need to be landlords to the end (and yeah OP, dealing with a management company after steering your own boat has zero appeal). Right now I'm looking at selling another apartment group to the guy who got the 7-plex. We are looking at using a "Transfer on Death Deed", which means we can have a sales contract, carry the contract at an agreed upon interest, and then at the death of the final seller the property is transferred to the buyer. The escrow company owner is going to call me tomorrow with more information and in a week or two I'll run this by our tax person.
The thought is that we will have an effective bond in the contract we carry - pay taxes on the interest as it comes in and on the capital gains and depreciation recapture only as we receive principal. Buyer should get a smoking deal if his 30 year contract gets cut in half if we croak at 85 or so, and we, having sold the place, get monthly payments and remove that sense of responsibility. Sorta a roll-your-own pension or annuity.
Uh oh.
Spent a year selling another little house and decided that the rent coming in was way too good to give the places away. Kept stacking up cash as various crisis hit the financial and real estate markets. Bought a winter house. Kept getting older. Heart tried to quit but the Gal wouldn't let it. Sold a 5-plex and a few more houses. Gave a 7-unit to a guy who has been very helpful with the rentals for years now. Down to 36 units now but am 70 years old.
For me, 50 was peak ability and 60 was still plenty canny and physically able, but not for sustained day after day work. 70? I don't want to, my mind isn't as capable, and my physical ability is paltry - and we still have 36 units bringing in more than the 54 were.
We have some real estate agents offering plenty of money for the remaining places, but dealing with the hassle of sale is exhausting. Buying is a piece of cake; selling is a major psychic drain. There are people we care about whose income would be affected by us selling. Pass on the rentals at our deaths? Wonderful step-up in basis, but we would need to be landlords to the end (and yeah OP, dealing with a management company after steering your own boat has zero appeal). Right now I'm looking at selling another apartment group to the guy who got the 7-plex. We are looking at using a "Transfer on Death Deed", which means we can have a sales contract, carry the contract at an agreed upon interest, and then at the death of the final seller the property is transferred to the buyer. The escrow company owner is going to call me tomorrow with more information and in a week or two I'll run this by our tax person.
The thought is that we will have an effective bond in the contract we carry - pay taxes on the interest as it comes in and on the capital gains and depreciation recapture only as we receive principal. Buyer should get a smoking deal if his 30 year contract gets cut in half if we croak at 85 or so, and we, having sold the place, get monthly payments and remove that sense of responsibility. Sorta a roll-your-own pension or annuity.
It appears that you don’t have the desire to travel internationally for extended period of time so this can work for you.
Winemaker
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No more than 3 weeks, but we have traveled internationally. Like I stated, DD and her husband are close by for any emergency calls, but only used them twice for emergencies over 21 years. We have done 18 days, but that was enough. Not having a desire for extended overseas travel is not a major hurdle for us.
Mr. Tightwad
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pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I guess my point was that the $4,850/month of rent that you collect is more related to having 1/3 of your net worth tied up in properties than the 2 hours a month of yard work that you do.... so your post suggesting that tradeoff was 2 hours of yard work a month for $4,850 of rent was a bit disingenuious.
pb4uski
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A question for you property owners who are hesitant to sell because of the capital gains tax hit and depreciation recapture.... are you similarly hesitant to sell other assets like stocks due to the capital gains tax hit? or is it just properties? Please elaborate on why and if different why it is different.
calmloki
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yes, I have that hesitancy with stock sales. Stocks should be easier to sell as the tax hit is substantially less, but my constitution just rebels against certain expenditures. I hate paying interest, no matter the dollar amount, and most commissions and fees disturb me. Strange thinking about it - property taxes don't bother me, and actually paying income taxes or writing quarterly checks is almost fun. It is a point of honor for me to pay workmen instantly.
Maybe it just takes a while for me to scrutinize paying for something of pretty intangible value.
Maybe it just takes a while for me to scrutinize paying for something of pretty intangible value.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
As I understand it the tax bite on a rental property sale would be between 15% and 25% depending on how much of the gain is depreciation recapture vs 15% for most stock sales... certainly different but not so different as to cause one to become paralized.
I guess one difference is that if you had a $1million stock portfolio you can sell a little at a time to spread out the tax bite... but with a property it is more of an all or nothing proposition unless you do an installment sale but an installment sale introduces other risks (not getting paid, buyer not keeping property up, etc.)
I guess one difference is that if you had a $1million stock portfolio you can sell a little at a time to spread out the tax bite... but with a property it is more of an all or nothing proposition unless you do an installment sale but an installment sale introduces other risks (not getting paid, buyer not keeping property up, etc.)
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Mr. Tightwad
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Perhaps rental real estate has a more painful tax bite psychologically because if you sell a primary residence you get the massive profit exclusion? So it seems like agony to pay tax on the rental property sale? (due to no exclusion).
I have sold one rental in my life. I remember telling others around me to remind me to never sell another, due to the tax bite.
Sunset
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
This is the reason for me.... which also includes timing.
With stocks I can sell in one day and be done. With a rental if I list it November 1st , it might sell this year... or it might sell next year.
Makes it hard to plan some tax issues.
Mr. Tightwad
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If you are saying if I had a gardener the rent would still be rolling in and I wouldn't be spending two hours on the yard, we agree. Otherwise I don't get it and it probably isn't worth discussing.
My rentals are 50% of my NW. Personal residence 25%. Other 25% stocks.
I do have a question for you. Do you view your stock accounts (I know you sold recently, but I mean normally) as having X amount tied up in stocks? Or is it just real estate you see it that way. Sure one is liquid and the other isn't. Does the liquidity difference determine the term "tied up"?
I have never thought of it as tied up. If it's tied up, I sure wish I would have tied up about 10x as much back when I was buying in the 90's.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I'm not sure if tied up is necessarily the right word... perhaps invested is better... my point was that the $4,850/month that you receive in rent is more due to having $x invested in a rental property than 2 hours a month of yard work.... if only for the fact that if you didn't have $x invested in the property then you wouldn't get $4,850/month for 2 hours a month of yard work.... or to boil it down for you... your comment that "I put in about 2 hours of yard work a month and collect $4850 in rent." was silly.
But to answer your question, if I had $x invested in real estate or stocks or bonds I think it would be fair to say that I had $x "tied up" in real estate or stocks or bonds. Clear now?
But to answer your question, if I had $x invested in real estate or stocks or bonds I think it would be fair to say that I had $x "tied up" in real estate or stocks or bonds. Clear now?
38Chevy454
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Maybe i can put to math to show what pb4uski is referring to. If we calculate $4850/mo x 12 months = $58.2K/yr; then if use the 4% withdrawal rate to get the same income your property has an invested value of $1.455M ($58.2K / .04 = $1.455M). You can use whatever rate of return you want instead of 4% as that is just a common value for a long sustaining portfolio withdrawal rate. If you assume a higher return, then your property can be worth less as equivalent investment (for example, 6% = $970K).
Mr. Tightwad
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I never said there was a trade off.
Fact 1: rent collected monthly is 4850
Fact 2: I choose to do 2 hours a month of yard work.
I collect the $ whether I engage in fact 2 or hire a gardener or let the place go to seed. Fact 1 and fact 2 are not dependent upon each other.
Anyways, place me in the category of I love being a landlord and wish I would have bought more back in the day. Easiest money I've ever made. Down payment was $5800 and its worth 1.3 mil now.
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38Chevy454
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So expanding on my post above, now with your estimate of the property value: $58.2K / $1.3M = 4.48% return currently on the equivalent invested value.
Mr. Tightwad
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Thanks. I think those that avoid rentals and stick with stocks look at those numbers and say "Those landlords are daft, they could be getting nearly 10% in the stock market." But besides those sweet rent checks that feed me and allow me to blow dough, I can cash out with maybe 800-900k after the sale or exchange it and skip the taxes.
