Sell my rental property?

[stephenson]

I used Premier 1031 for QI & JRW Investments, Chris Rogers who leads their due diligence efforts. Most of our dst are Exchange Right and All Cash portfolios which are predominently made of net lease properties to BBB and better corporations.
No regrets and DW is especially happy not to have to be concerned with possibilities of dealing with property management and tenants. Every transaction went smoothly and 1031 deadlines fully observed. For me, tricky part was choosing to be sure we met required leverage requirements with dst chosen

Thanks - if our properties are owned outright is there a leverage issue? I may be misunderstanding the process?

 

[nwsteve]

Thanks - if our properties are owned outright is there a leverage issue? I may be misunderstanding the process?

If your properties have no mortgage, you will be able to convert 100% $$ to DSTs equivalent to your total sales value. One of the reasons I like the JRW folks they are fully schooled in all the nuances of the 1031.
Our 2 duplexes still carried 40% of value in first mortgages (@4%) so needed to find enough debt on new 1031 properties to replace.

 

[stephenson]

Thanks, nwsteve,

I like all the pros, except:
- don't actually own real estate in a classic diversification manner
- may not appropriately benefit from appreciation (depends on lots of factors, though)
- may not appropriately benefit from rent increases (depends on lots of factors, though)

What happens if the DST(s) are collapsed prior to one's death? Can they be set up to auto roll to new DSTs?

 

[nwsteve]

Just like when you purchased your rentals, you have a similar opportunity to choose your asset mix and locations when you select your DSTs. For example, we avoided any DSTs that included assets in CA, Illinois,and NY.
All DSTs own real estate so appreciation is certainly available, but same "rules" apply--location, location, location
You choose the DSTs, so are fully in charge how rent increases are distributed and they do vary so be sure to ask your broker to show the language in the prospectus--not fun reading but it is covered. Our DSTs are funded by largely long term leases with contractual lease bumps.
Sorry, no true auto rolls but plenty of opportunity to repeat the 1031 process or convert to 721 at maturity which also you can somewhat predetermine .
Hope the above is helpful. When you pick a broker, be sure they are responsive and not dismissive of your questions. I interviewed 3 alternatives before making my selection

 

[Finance Dave]

I'd sell. You fail to mention the "trouble factor" that goes with having a rental. Even if it runs smoothly, there are repairs, collecting rent, extra tax forms to file, and so on.

We had 5 rentals and sold them all about 5 years ago. We staggered the sales as best we could so that it only impacted IRMAA for one of the three years in which we sold. Peace of mind is worth it. Your spouse will not have to deal with this if you (hopefully not) pass unexpectedly.

Congrats on some great appreciation!

 

[stephenson]

Thanks, nwsteve - your experience has been very helpful in my learning curve!

Finance Dave - I think I have a few options between bookends of selling and keeping, including close relationship with trusted fix-it guy, shifting more and to management company (with their fixit guy, or mine), complete hands off with management company.

Lot to think about!

 

[latexman]

I’d sell it quick, because Home Values Are Falling in These 10 Major Metros—Florida Dominates the List

 

[stephenson]

I’d sell it quick, because Home Values Are Falling in These 10 Major Metros—Florida Dominates the List

Don't know the author - have checked the numbers, but certainly some softening,

Our area is smaller, but has been some softening.p, as well. Given the current prices are about 1 to 1.5X purchase price from 8-10 years ago when we bought, it seems normal.

 

[surprising]

I have two rentals now vacant. Rental market is extremely soft right now and we're not getting much interest. We've decided to go ahead and sell one of them now. Unfortunately this means MAGI will be too high for ACA subsidies and so we'll be paying full price when we go on ACA in April. This is after optimizing my portfolio end of last year to be in a position to qualify for ACA subsidies Ah well, best laid plans..

Looking for advice on how to best handle this situation. Since I'll be over the ACA limit, I could bite the bullet and sell both properties this year. I will be under 15% LTCG bracket limit even with both sales, so overall taxes will be OK, and then next year I can qualify for ACA subsidies again. My first thought was to spread it out over two years but then I'll pay full price ACA for both years for no real benefit I can see. I might be under NIIT if I spread it out.

I can also do 1031 exchange to defer any taxes. We are already considering purchasing a snow bird home which we were thinking we'd rent out some day but not right away. I think 1031 is pretty strict in how much you can owner occupy it, so not sure if its worth the headache.

 

[COcheesehead]

I have two rentals now vacant. Rental market is extremely soft right now and we're not getting much interest. We've decided to go ahead and sell one of them now. Unfortunately this means MAGI will be too high for ACA subsidies and so we'll be paying full price when we go on ACA in April. This is after optimizing my portfolio end of last year to be in a position to qualify for ACA subsidies Ah well, best laid plans..

Looking for advice on how to best handle this situation. Since I'll be over the ACA limit, I could bite the bullet and sell both properties this year. I will be under 15% LTCG bracket limit even with both sales, so overall taxes will be OK, and then next year I can qualify for ACA subsidies again. My first thought was to spread it out over two years but then I'll pay full price ACA for both years for no real benefit I can see. I might be under NIIT if I spread it out.

I can also do 1031 exchange to defer any taxes. We are already considering purchasing a snow bird home which we were thinking we'd rent out some day but not right away. I think 1031 is pretty strict in how much you can owner occupy it, so not sure if its worth the headache.

Keep recapture taxes in mind as well. It’s not just long term cap gains.

 

[dobig]

I have two rentals now vacant. Rental market is extremely soft right now and we're not getting much interest. We've decided to go ahead and sell one of them now. Unfortunately this means MAGI will be too high for ACA subsidies and so we'll be paying full price when we go on ACA in April. This is after optimizing my portfolio end of last year to be in a position to qualify for ACA subsidies Ah well, best laid plans..

Looking for advice on how to best handle this situation. Since I'll be over the ACA limit, I could bite the bullet and sell both properties this year. I will be under 15% LTCG bracket limit even with both sales, so overall taxes will be OK, and then next year I can qualify for ACA subsidies again. My first thought was to spread it out over two years but then I'll pay full price ACA for both years for no real benefit I can see. I might be under NIIT if I spread it out.

I can also do 1031 exchange to defer any taxes. We are already considering purchasing a snow bird home which we were thinking we'd rent out some day but not right away. I think 1031 is pretty strict in how much you can owner occupy it, so not sure if its worth the headache.

On 1031's our previous long time CPA advised us to use the exchange property for 2 years as an investment and then turn around and make it our primary. We could then sell it after the 5 year holding period and defer taxes on capital gains up to the max exemption.

 

[Diogenes]

In my experience, rents don't keep up with appreciation, so after a certain amount of time, the numbers just won't work if you're looking for maximum return. However, it still has utility as a source of diversification.

As an outsider/amateur, this has been my observation as well, for VHCOL areas. Rents have increased, but property values have increased much faster. For newcomers to the area, it's more cost-effective to rent, even if they're wealthy. Established landlords can still profit, but they have to reckon with the opportunity cost. Sell the property, deploy the money elsewhere, and enjoy higher returns. This is especially true for older folks, who seek simplification.

The one exception is for landlords who live on-site in a multi-unit property. There, the landlord benefits both from economy of scale, and from having "free" housing for his or her own self.

 

[stephenson]

We have a rental with previous tenants moving in late November - military.

Just rented at a bit higher rate - had on market for about three weeks - was doing some overdue repainting and appliance replacements. Our market still doing OK.

 

[nwsteve]

For those landlords considering selling their rentals, our RE Agent made it very clear that if you are getting market rents, your property is far more attractive to buyers and your cap rate will yield a higher price than a vacant similar unit unit.

 

[kyzymurgist]

Interesting. I sold my remaining rental last year and my realtor gave the opposite advice. My property was a two bedroom townhouse and he said it would be more desirable for entry level homebuyers than for investors looking for a decent ROI. I know I would never purchase to rent at 7% cap rate but I was spoiled by purchasing in 2014.

 

[tryan]

Crystal ball is a little foggy ...don't know if we're peaking. BUT I do know we're NOT at a bottom.

I'ld sell

 

[nwsteve]

Interesting. I sold my remaining rental last year and my realtor gave the opposite advice. My property was a two bedroom townhouse and he said it would be more desirable for entry level homebuyers than for investors looking for a decent ROI. I know I would never purchase to rent at 7% cap rate but I was spoiled by purchasing in 2014.

Our college town rental property was investor focus vs first time residential buyer. Proves there is more than one "right" answer

 

[surprising]

Keep recapture taxes in mind as well. It’s not just long term cap gains.

If I'm reading it right, depreciation recapture is counted as ordinary income but with a 25% max bracket. Hopefully depreciation recapture will be my only ordinary income this year, and it would fall in 12% bracket.