Huston55
Thinks s/he gets paid by the post
Situation: I have a rental property (2BR/2BA condo) which I've owned for ~10yrs. It generates 4.5% ROC, I use that income as part of annual income (retired in 2014) and I view it as part of my Bond-ish allocation. I've been analyzing what to do with the property long term to maximize value/income (next 20+yrs, essentially until demise of me & DW), and would like other's opinions on the best option.
Analysis: I did a simple NPV comparison for four options, which I've summarized below. Key numbers used are: Property Value=$200k (same as purchase price); 3% discount rate; 2% annual property appreciation; 6% realtor fee @ sale; 7% state sales tax @ sale; 20% "blended" cap gains tax on sale; 25% cap gains tax on Depreciation Recapture; CRT requires 'donation' of 10% of value & avoids Cap Gains & Depreciation Recapture on 100% of value; I value the CRT income by pricing a 2-life SPIA on immediateannuities.com.
1. Option#1: Retain condo as a rental for next 20yrs (to end of depreciation)
NPV = (net monthly income)+(net sales proceeds in 20yrs)
= ($750x12x20)Disc@3% + [$200k(1.02)*20x(1.00-.06-.07)x0.80}Disc@3%
= $135k + [$297k(0.87)(0.80)]Disc@3%
= $220k
2. Option#2: Put condo into a Charitable Remainder Trust (CRT) Now
NPV = [(Prop Value)X0.90]>>Converted to 2-Life SPIA + [(Prop Value)x0.10(20% cap gains savings]
= [$200k(0.90)>>Converted to 2-Life SPI} + [$20k(0.20)]
= $731/mo(Disc@3% for 30yrs) + $4k
= $177k
3. Option#3: Put condo into a CRT in 20yrs (when depreciation ends)
NPV = [net monthly income, 20yrs] + [90% to CRT in 20yrs(Disc@3%)]
= [$135k] + [$297k(0.87)(0.90)Disc@3% + Cap Gains Savings]
= $135k + $129k + $4k
= $268k
4. Option#4: Sell condo now
NPV = [Prop Value] - [Depreciation Recapture]
= [$200k(1.00-0.06-0.07)] - [$80k(0.25)]
= $154k
Preliminary Conclusion: Option#3 is the clear winner based on my analysis, and is currently our tentative plan.
I'd like feedback on my analysis (Complete? Mistakes?) and whether there are other options I should consider. Thanks in advance for taking the time to evaluate this.
Analysis: I did a simple NPV comparison for four options, which I've summarized below. Key numbers used are: Property Value=$200k (same as purchase price); 3% discount rate; 2% annual property appreciation; 6% realtor fee @ sale; 7% state sales tax @ sale; 20% "blended" cap gains tax on sale; 25% cap gains tax on Depreciation Recapture; CRT requires 'donation' of 10% of value & avoids Cap Gains & Depreciation Recapture on 100% of value; I value the CRT income by pricing a 2-life SPIA on immediateannuities.com.
1. Option#1: Retain condo as a rental for next 20yrs (to end of depreciation)
NPV = (net monthly income)+(net sales proceeds in 20yrs)
= ($750x12x20)Disc@3% + [$200k(1.02)*20x(1.00-.06-.07)x0.80}Disc@3%
= $135k + [$297k(0.87)(0.80)]Disc@3%
= $220k
2. Option#2: Put condo into a Charitable Remainder Trust (CRT) Now
NPV = [(Prop Value)X0.90]>>Converted to 2-Life SPIA + [(Prop Value)x0.10(20% cap gains savings]
= [$200k(0.90)>>Converted to 2-Life SPI} + [$20k(0.20)]
= $731/mo(Disc@3% for 30yrs) + $4k
= $177k
3. Option#3: Put condo into a CRT in 20yrs (when depreciation ends)
NPV = [net monthly income, 20yrs] + [90% to CRT in 20yrs(Disc@3%)]
= [$135k] + [$297k(0.87)(0.90)Disc@3% + Cap Gains Savings]
= $135k + $129k + $4k
= $268k
4. Option#4: Sell condo now
NPV = [Prop Value] - [Depreciation Recapture]
= [$200k(1.00-0.06-0.07)] - [$80k(0.25)]
= $154k
Preliminary Conclusion: Option#3 is the clear winner based on my analysis, and is currently our tentative plan.
I'd like feedback on my analysis (Complete? Mistakes?) and whether there are other options I should consider. Thanks in advance for taking the time to evaluate this.
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