Should I sell? My property has appreciated +$90K...
Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
Should I sell? My property has appreciated +$90K...
Most Popular Reply
Based on your discussion. I would definitely sell. San Antonio is certainly hot, my daughter is getting ready to sell her home since the Air Force is transferring her to Germany.
The concern with Pool and the HOA is the biggest flags for me.
If you have found a property already in Austin, you might want to do a 1031 exchange. You will be able to roll your equity into the next property without the capital gains hit and you should be able to find a great property. The kicker is the timelines to find and close on the next property.
Good luck
50 Replies
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
I have lived in this property for almost 4 years and I acquired it with a conventional loan (no 1031 exchange). Thanks for your advises!
- 9yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Josue Vargas then you should be all set for a nice tax-free profit - congrats! You're in a good position to accelerate your REI portfolio, so now comes the fun part of researching how you want to deploy that capital ;) If you have any questions about the turnkey model or the market down here in Birmingham, feel free to reach out any time.
Best of luck!
- 9yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Clayton Mobley I need to correct something about the requirements to take the sec 121 exclusion although it doesn't apply in the OPs case. But for the greater good.....
You absolutely can take a prorated primary residence exemption under sec 121 for property that was purchased in a 1031 exchange and then later converted to your primary residence. There are three additional rules however. In addition to having lived in it for 2 out of the last 5 years you also have to have owned it for at least 5 years total. You have to recapture depreciation taken. And you only get to take an amount of gain tax free that is proportional to the time of "qualified use" (as your primary residence.
Again, not exactly germane to this thread but the strategy of 1031, later conversion to primary residence, and then sale and proration so that some gain is tax free is a powerful periodic end game strategy for the 1031 investor. You don't want to miss out on it thinking you can't do it.
The 1031 Investor5137 Reviews - 9yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Dave Foster thank you, good sir, for the clarification! I definitely wasn't specific enough in my casual 1031 reference ;) and I wouldn't want anyone to think that everything is so black and white. I definitely agree that converting a 1031-purchased prop to a primary residence is a super powerful strategy, as is the reverse - converting a primary to a rental and then executing a 1031 later. So many ways to take advantage of these two amazing tax benefits.
Thank you for clarifying for the greater good!
Originally posted by @Josue Vargas:
I want to move to a different nerby city (Austin), debating on rent or sale. My propery is in San Antonio, Texas, in a very desirable neighborhood. If I sell now, I should get easely 90K in profit after all expenses. Rent is about average for this type of property in a desirable neighborhood ($2,500/month). So I can refinince to 30 years and rent and get some cash flow (guessing $200 after all good stuff)... Should I sell or rent? My concern of renting is maintenance stuff, like pool, yard, etc. and people not taking care of basic stuff... HOA is hardcore and I suspect I will be getting mail letters and fixing issues more than often.
It depends on your specific investment goal. What is it?
If it is to generate long-term wealth...no, never sell! Learn how to self-manage remotely or hire an experienced reputable property manager.
Then, cash out refinance and take that cash and buy another...and do it again, and again, and again!
I never sell, unless my original investment thesis or assumptions end up being wrong OR the neighborhood changes and I'm unable to attract quality tenants.
And, more often than not, unless the fees are super high...HOAs are a good thing. They'll keep the neighborhood property values up.
- Investor · San Antonio, TX · Member since 2013 · 213 posts · 182 votes9yDefinitely sell. Those rents are way too high for San Antonio and that would be risky if the market turns. I don't think Austin is better but if your job takes you there then it is what it is. Most my Austin investors are starting to invest in San Antonio.
- Downers Grove, IL · Member since 2017 · 366 posts · 165 votes9y
TX, could be different, from my experience with rentals the more expensive each unit is on any type of property, the lower your ROI based on current market value. Lower value properties are typically more risky though. Don't like being on the high end of the rental spectrum in a market either.
Sounds like there are more reasons to sell than not to.
I hate pools, even within condo associations, to much time and energy focused on those damm pools when associations have more serious problems.
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Jon Q.:
Originally posted by @Josue Vargas:
I want to move to a different nerby city (Austin), debating on rent or sale. My propery is in San Antonio, Texas, in a very desirable neighborhood. If I sell now, I should get easely 90K in profit after all expenses. Rent is about average for this type of property in a desirable neighborhood ($2,500/month). So I can refinince to 30 years and rent and get some cash flow (guessing $200 after all good stuff)... Should I sell or rent? My concern of renting is maintenance stuff, like pool, yard, etc. and people not taking care of basic stuff... HOA is hardcore and I suspect I will be getting mail letters and fixing issues more than often.
It depends on your specific investment goal. What is it?
If it is to generate long-term wealth...no, never sell! Learn how to self-manage remotely or hire an experienced reputable property manager.
Then, cash out refinance and take that cash and buy another...and do it again, and again, and again!
I never sell, unless my original investment thesis or assumptions end up being wrong OR the neighborhood changes and I'm unable to attract quality tenants.
And, more often than not, unless the fees are super high...HOAs are a good thing. They'll keep the neighborhood property values up.
My goal is long-term wealth, but like most people said here, I think my best option is to sell and buy something that makes more sense in an area nearby my future location (Austin). I love my house, the location, school district, etc, but I need to move out. For sure I will get the cash and reinvest.
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Also, I didn't mention previously, but the taxes on this house are exorbitant ($10K+ per year even with the homestead deduction) and every single year I have received a tax increase (of course the property have appreciated significantly also)...
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Would any explain the liability issue with the pool? I have zero experience renting with pool. Isn't enough a good insurance and a well written contract regarding the pool in terms of liability?
Originally posted by @Josue Vargas:
Originally posted by @Jon Q.:
Originally posted by @Josue Vargas:
I want to move to a different nerby city (Austin), debating on rent or sale. My propery is in San Antonio, Texas, in a very desirable neighborhood. If I sell now, I should get easely 90K in profit after all expenses. Rent is about average for this type of property in a desirable neighborhood ($2,500/month). So I can refinince to 30 years and rent and get some cash flow (guessing $200 after all good stuff)... Should I sell or rent? My concern of renting is maintenance stuff, like pool, yard, etc. and people not taking care of basic stuff... HOA is hardcore and I suspect I will be getting mail letters and fixing issues more than often.
It depends on your specific investment goal. What is it?
If it is to generate long-term wealth...no, never sell! Learn how to self-manage remotely or hire an experienced reputable property manager.
Then, cash out refinance and take that cash and buy another...and do it again, and again, and again!
I never sell, unless my original investment thesis or assumptions end up being wrong OR the neighborhood changes and I'm unable to attract quality tenants.
And, more often than not, unless the fees are super high...HOAs are a good thing. They'll keep the neighborhood property values up.
My goal is long-term wealth, but like most people said here, I think my best option is to sell and buy something that makes more sense in an area nearby my future location (Austin). I love my house, the location, school district, etc, but I need to move out. For sure I will get the cash and reinvest.
Your goals needs to be much more specific than that in order to be helpful. Need income? What's your target return for each deal? Cash-on-cash return target? IRR target?
No, I would not sell. In this market currently, it's very unlikely you'll find anything equivalent for the price you paid previously, plus you're going to get hit with taxes. Avoid taxes like the plague!
If you are looking to "develop long-term wealth" ask yourself. How can I improve my currently financial position? The best answer sounds like obtaining a cash-out refi and taking that money and acquiring another rental property.
Investors develop long-term wealth by being invested in property. Not by selling property.
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Jon Q.:
Originally posted by @Josue Vargas:
Originally posted by @Jon Q.:
Originally posted by @Josue Vargas:
I want to move to a different nerby city (Austin), debating on rent or sale. My propery is in San Antonio, Texas, in a very desirable neighborhood. If I sell now, I should get easely 90K in profit after all expenses. Rent is about average for this type of property in a desirable neighborhood ($2,500/month). So I can refinince to 30 years and rent and get some cash flow (guessing $200 after all good stuff)... Should I sell or rent? My concern of renting is maintenance stuff, like pool, yard, etc. and people not taking care of basic stuff... HOA is hardcore and I suspect I will be getting mail letters and fixing issues more than often.
It depends on your specific investment goal. What is it?
If it is to generate long-term wealth...no, never sell! Learn how to self-manage remotely or hire an experienced reputable property manager.
Then, cash out refinance and take that cash and buy another...and do it again, and again, and again!
I never sell, unless my original investment thesis or assumptions end up being wrong OR the neighborhood changes and I'm unable to attract quality tenants.
And, more often than not, unless the fees are super high...HOAs are a good thing. They'll keep the neighborhood property values up.
My goal is long-term wealth, but like most people said here, I think my best option is to sell and buy something that makes more sense in an area nearby my future location (Austin). I love my house, the location, school district, etc, but I need to move out. For sure I will get the cash and reinvest.
Your goals needs to be much more specific than that in order to be helpful. Need income? What's your target return for each deal? Cash-on-cash return target? IRR target?
No, I would not sell. In this market currently, it's very unlikely you'll find anything equivalent for the price you paid previously, plus you're going to get hit with taxes. Avoid taxes like the plague!
If you are looking to "develop long-term wealth" ask yourself. How can I improve my currently financial position? The best answer sounds like obtaining a cash-out refi and taking that money and acquiring another rental property.
Investors develop long-term wealth by being invested in property. Not by selling property.
Thanks for the questions and thoughts you put in this post.
To answer your questions:
1) In my opinion more income is always great to have, but I do not need more income right now in order to reinvest. My wife and I have very good jobs and able to utilize our capital (profits form selling this house is huge, but not my only capital) for reinvestment. I'm in no rush to buy right away after selling, I prefer to move-in a rental and become very familiar of areas in the new location before jumping into a "good deal" where isn't one indeed. I don't like D or C locations, so that's there too. I could entertain goals and numbers and all that, but I own this property already and the numbers do not look as good as I wanted to be.
2) I don't think I would be hit with taxes. This is my homestead for about 4 years now, unless I'm missing something, please let me know! I would agree with you about finding an equivalent property for the price I originally purchased... it will be extremely difficult (purchased in 2013 when the market prices were very low). Isn't part of REI to get as much equity as possible in a short term and reuse that to buy a good deal that makes more sense to the current situation? Not saying this is the strategy I used, or the one most investors use. I didn't plan for this, it just happen to be a good one for me. The main issue as I stated in my original post to keep this property are the pool, HOA, nice property with high rent, and marginal cash-flow.
3) I recently refi this property with a good interest rate lowering the mortgage from 30 to 20 years. Maybe made sense a year ago, not now that I have to move out. I could obtain a 30-year cash-out refi, still I don't like the numbers to keep this property (borderline cash-flow and risks of appreciation speculation).
4) Its my goal to develop long-term wealth, maybe this time by re-investing in a different area and finding a good deal. It may take 1-2 years from now to find a good deal that make sense, and I'm willing to wait and put the capital at work on other passive income areas until that time.
Thanks for your comments!
- 9yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Josue Vargas I know I've already weighed in with my opinion, but it looks like you're getting some conflicting info so I thought I'd chime in again to address your points:
1. If the profit from this sale isn't your only capital, and you don't need it to live off of, you're in a great position. With that amount of flexibility, you could take your time after the sale, move to Austin and settle in, and then use some of your additional capital to reinvest in a portfolio of cash-flow properties.
-I am not as familiar with the TX markets as I am Birmingham, of course, but if you were determined to invest close to home and self-manage, taking the time to learn Austin and its environs super well will pay off.
-If you don't need to invest nearby or self-manage, you could find plenty of opportunities to reinvest in other markets with lower prop values, higher cash flow, and reputable PMs.
-I definitely agree that you want to avoid C/D areas, at least for now. Some people definitely make money in those areas, and ROIs do tend to be high on paper, but you need to be very very familiar with the market and local housing authority regs, and be able to manage them yourself. It's not typically a great strategy for new investors.
2. As we discussed earlier in the thread, since you have lived in the property for more than 2 years out of the previous 5, you shouldn't have to pay any taxes on up to $250k of gain (or $500k if you're married). The anticipated 90k is well below this threshold so you should be fine.
-While it is true that it's unlikely you could find a comparable property in the same area for less than what you paid, you could absolutely find properties elsewhere. In REI, you often have to be flexible about market if you live in an area where good B/B+ props are pricey (C/D are too risky, A's typically have PITI payments so high that they negate cashflow). There may even be other areas in TX that would be suitable. Again, I don't know the full value of your current prop so I can't be more specific, but given the numbers you've posted thus far, I don't think looking to get another prop with the same specs is what you're shooting for.
-It sounds like you're at the high end of the rental spectrum as it is, which can be a dangerous place to be if the market turns. Your cash flow is nothing to get excited about, and the HOA/pool issues...well we've already covered why that's a headache, especially from a distance. You don't have the margin to hire a PM, so you should be using the capital to find properties with more wiggle room
3. While it would be possible refi for 30yrs and lower your PITI payments, how much of a difference would this make in your cash flow vs how much would it cost in fees and hassle? Would it make it a truly profitable property or would it just make the numbers less mediocre?
4. Since you don't need the capital now and won't pay taxes on the sale, I think you have the right attitude. You have time to do your research and see which direction you want to go. I don't typically advise letting that amount of money just sit, however. There are other, more liquid, options you could pursue to put your capital to work without it being locked up long-term. You could put some of it in an indexed ETF, for example, which would allow you to pull it out at-will with minimal fees (I believe the Vanguard S&P 500 index ETF has an expense ratio of like 0.05% or less).**I'm not personally advocating this investment, but using it as an example of a relatively cheap, liquid investment with historically positive returns. If you're wanting to deploy your capital in the very near future, of course, this option is less useful. Always do your own due diligence on any investment.**
-My point is that, if you don't want to jump into an REI investment right away, look at other options for earning compound interest that would allow you to pull your capital at your discretion (so, not hedge funds etc). I personally think REI is one of the best places to stash your cash, but everyone works on their own timeline, so just be aware there are options out there that don't leave huge chunks of capital languishing in your checking account.
5. A point of my own: Your taxes are NUTS. That's a huge waste of cash flow every year. If you invest out of state, you'll pay approx double the residential rate, but that can still be far, far lower than what you're paying if you invest in a state with low property taxes.
-SmartAsset has a great tool for comparing property taxes in different areas. I'd recommend putting in San Antonio with the value of your current prop and then comparing to other markets. For example, if you put in Birmingham, AL and double the tax bill on a $120k property (a higher-than average price tag for a B/B+ cash flow property here) it still comes out waaaayyyyy lower than the figure for the same value property in San Antonio or Austin. Take a look and see what you could save if you went out of state: https://smartasset.com/taxes/property-taxes
While I, of course, think turnkey is a fantastic way to start an REI career - and a good way to get a portfolio of reliable passive-income-producing assets under your belt - there a billion right ways to do REI. If you're not ready to dive into anything right now, use your flexibility to do your research and vet your options. Jumping into a new property just because you feel like you should be doing something is rarely a good move.
Figure out what your goals are for your investments, how much time/effort you want to devote to them after you cut a check, and how much control you need to feel over the day-to-day. Can you invest out of state or do you need to be able to see the property? Do you want to do some hands-on rehab work, or do you want a professional do take care of it? Do you want to be a landlord, or do you just want to collect rent and pay someone else to handle tenants and maintenance? Do the work of figuring out where you want to go and be brutally honest with yourself about where you are right now. REI will still be here when you're ready to take the plunge ;)
Best of luck!
Clayton
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Clayton Mobley:
@Josue Vargas I know I've already weighed in with my opinion, but it looks like you're getting some conflicting info so I thought I'd chime in again to address your points:
1. If the profit from this sale isn't your only capital, and you don't need it to live off of, you're in a great position. With that amount of flexibility, you could take your time after the sale, move to Austin and settle in, and then use some of your additional capital to reinvest in a portfolio of cash-flow properties.
-I am not as familiar with the TX markets as I am Birmingham, of course, but if you were determined to invest close to home and self-manage, taking the time to learn Austin and its environs super well will pay off.
-If you don't need to invest nearby or self-manage, you could find plenty of opportunities to reinvest in other markets with lower prop values, higher cash flow, and reputable PMs.
-I definitely agree that you want to avoid C/D areas, at least for now. Some people definitely make money in those areas, and ROIs do tend to be high on paper, but you need to be very very familiar with the market and local housing authority regs, and be able to manage them yourself. It's not typically a great strategy for new investors.
2. As we discussed earlier in the thread, since you have lived in the property for more than 2 years out of the previous 5, you shouldn't have to pay any taxes on up to $250k of gain (or $500k if you're married). The anticipated 90k is well below this threshold so you should be fine.
-While it is true that it's unlikely you could find a comparable property in the same area for less than what you paid, you could absolutely find properties elsewhere. In REI, you often have to be flexible about market if you live in an area where good B/B+ props are pricey (C/D are too risky, A's typically have PITI payments so high that they negate cashflow). There may even be other areas in TX that would be suitable. Again, I don't know the full value of your current prop so I can't be more specific, but given the numbers you've posted thus far, I don't think looking to get another prop with the same specs is what you're shooting for.
-It sounds like you're at the high end of the rental spectrum as it is, which can be a dangerous place to be if the market turns. Your cash flow is nothing to get excited about, and the HOA/pool issues...well we've already covered why that's a headache, especially from a distance. You don't have the margin to hire a PM, so you should be using the capital to find properties with more wiggle room
3. While it would be possible refi for 30yrs and lower your PITI payments, how much of a difference would this make in your cash flow vs how much would it cost in fees and hassle? Would it make it a truly profitable property or would it just make the numbers less mediocre?
4. Since you don't need the capital now and won't pay taxes on the sale, I think you have the right attitude. You have time to do your research and see which direction you want to go. I don't typically advise letting that amount of money just sit, however. There are other, more liquid, options you could pursue to put your capital to work without it being locked up long-term. You could put some of it in an indexed ETF, for example, which would allow you to pull it out at-will with minimal fees (I believe the Vanguard S&P 500 index ETF has an expense ratio of like 0.05% or less).**I'm not personally advocating this investment, but using it as an example of a relatively cheap, liquid investment with historically positive returns. If you're wanting to deploy your capital in the very near future, of course, this option is less useful. Always do your own due diligence on any investment.**
-My point is that, if you don't want to jump into an REI investment right away, look at other options for earning compound interest that would allow you to pull your capital at your discretion (so, not hedge funds etc). I personally think REI is one of the best places to stash your cash, but everyone works on their own timeline, so just be aware there are options out there that don't leave huge chunks of capital languishing in your checking account.
5. A point of my own: Your taxes are NUTS. That's a huge waste of cash flow every year. If you invest out of state, you'll pay approx double the residential rate, but that can still be far, far lower than what you're paying if you invest in a state with low property taxes.
-SmartAsset has a great tool for comparing property taxes in different areas. I'd recommend putting in San Antonio with the value of your current prop and then comparing to other markets. For example, if you put in Birmingham, AL and double the tax bill on a $120k property (a higher-than average price tag for a B/B+ cash flow property here) it still comes out waaaayyyyy lower than the figure for the same value property in San Antonio or Austin. Take a look and see what you could save if you went out of state: https://smartasset.com/taxes/property-taxes
While I, of course, think turnkey is a fantastic way to start an REI career - and a good way to get a portfolio of reliable passive-income-producing assets under your belt - there a billion right ways to do REI. If you're not ready to dive into anything right now, use your flexibility to do your research and vet your options. Jumping into a new property just because you feel like you should be doing something is rarely a good move.
Figure out what your goals are for your investments, how much time/effort you want to devote to them after you cut a check, and how much control you need to feel over the day-to-day. Can you invest out of state or do you need to be able to see the property? Do you want to do some hands-on rehab work, or do you want a professional do take care of it? Do you want to be a landlord, or do you just want to collect rent and pay someone else to handle tenants and maintenance? Do the work of figuring out where you want to go and be brutally honest with yourself about where you are right now. REI will still be here when you're ready to take the plunge ;)
Best of luck!
Clayton
Glad you weight in:
1) Its not my only capital as I said before. No rush and taking the safe path and learn how the market in Austin is for my investing criteria. I want to keep a close eye on my investments, so investing on a property above 30 min driving distance is not an option, at least for now. Agreed on C/D areas, not a fan of them even, too much headaches!
2) Understood. Just so you have an idea, I purchased my house for 340K, estimated when refi one year ago for 425K, my neighbor purchased a similar house for 410K six month ago, one is selling now for 435K with less footage and no pool, another is selling for 550K with no pool and about one more bedroom (3400 sqft).
3) It will be mediocre profit, since I already invested 8K on closing cost for the previous refi, another one will not make sense. That was my point on the refi from 30 to 20 years a year ago, but I wasn't expecting to sell so soon.
4) Agreed. Not 100% sure what will I do with my capital at this point, first I need to find a place, rent, and sell. I need to talk to a CPA for sure because I will be generating a lot of income at one time from my current employer if I leave. Any suggestions?
5) Thanks for the great advice! I was able to submit a protest from my current property, and got somewhat an average deal. They adjust my taxes as an average from the previous year and current year, so less taxes, and it will not go up for two years ( If I don't sell obviously). Well worth the experience of protesting the taxes.
As far as figuring out my approach to investing, I had goals set-up already, but like anything else in life, we need to adjust, and this adjustments is a great opportunity for me to continue that path. Before, I was settle on paying loans and continue with my two properties in Puerto Rico for two more years until getting enough cash to boy another property, now I can expand that into a house hacking (duplex or triplex) and continue from there, having 5 doors or more in less time than expected. Love to hear from investors about that!
- 9yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Josue Vargas Sounds like you're in a great position! Glad to hear you were able to get a bit of a deal on your taxes, those can take such a bite out of your returns.
With regard to your capital and possible influx of income, DEFINITELY get a good CPA on your team. Of course, maxing out your 401k and IRA contributions is often a good start. If you don't have one already, you can get a Self Directed IRA (SDIRA) and even invest in REI from within that account, so that may be an option to look into if you need to shelter some income from taxation but want to put it into real estate. Again, you've got time on your side, so I'd say your first step would be to get a good CPA to make sure everything is documented correctly for the sale and tax exemption, and establish a strategy for handling that extra income if/when it comes. They can also make sure you're taking your max deductions for the rentals you already own to help even out any tax you have to pay on your income surge.
With two props in PR, you're in an even better position than I thought, so you're nicely set up to leapfrog into a solid portfolio. I don't have any experience in that market, but I'm sure there are some here who will chime in.
Best of luck in Austin! If you ever need info about the turnkey model or the market down here in Birmingham, you know where to find me!
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
I do have a 401K, and I need a CPA. How much beneficial would be maximizing my 401K when I can use that money for invest purposes? I'm thinking on dumping most of my ESOP from my company into maxing the 401K, but I will have so much money left out of that I believe it will be taxable... I need more info on self direct SDIRA and College funds for my son... I rather have good capital available for investment when the time is wright. I want to avoid loopholes on getting my cash or investment money out of IRAs or things of that nature. I'm not a CPA, and will look for advice. Do you know a good CPA? Any recommendations? Will it matter to be out of state for CPA purposes? I imagine with investing purposes, it will make sense to have a CPA local...
Originally posted by @Josue Vargas:
Originally posted by @Clayton Mobley:
@Josue Vargas I know I've already weighed in with my opinion, but it looks like you're getting some conflicting info so I thought I'd chime in again to address your points:
1. If the profit from this sale isn't your only capital, and you don't need it to live off of, you're in a great position. With that amount of flexibility, you could take your time after the sale, move to Austin and settle in, and then use some of your additional capital to reinvest in a portfolio of cash-flow properties.
-I am not as familiar with the TX markets as I am Birmingham, of course, but if you were determined to invest close to home and self-manage, taking the time to learn Austin and its environs super well will pay off.
-If you don't need to invest nearby or self-manage, you could find plenty of opportunities to reinvest in other markets with lower prop values, higher cash flow, and reputable PMs.
-I definitely agree that you want to avoid C/D areas, at least for now. Some people definitely make money in those areas, and ROIs do tend to be high on paper, but you need to be very very familiar with the market and local housing authority regs, and be able to manage them yourself. It's not typically a great strategy for new investors.
2. As we discussed earlier in the thread, since you have lived in the property for more than 2 years out of the previous 5, you shouldn't have to pay any taxes on up to $250k of gain (or $500k if you're married). The anticipated 90k is well below this threshold so you should be fine.
-While it is true that it's unlikely you could find a comparable property in the same area for less than what you paid, you could absolutely find properties elsewhere. In REI, you often have to be flexible about market if you live in an area where good B/B+ props are pricey (C/D are too risky, A's typically have PITI payments so high that they negate cashflow). There may even be other areas in TX that would be suitable. Again, I don't know the full value of your current prop so I can't be more specific, but given the numbers you've posted thus far, I don't think looking to get another prop with the same specs is what you're shooting for.
-It sounds like you're at the high end of the rental spectrum as it is, which can be a dangerous place to be if the market turns. Your cash flow is nothing to get excited about, and the HOA/pool issues...well we've already covered why that's a headache, especially from a distance. You don't have the margin to hire a PM, so you should be using the capital to find properties with more wiggle room
3. While it would be possible refi for 30yrs and lower your PITI payments, how much of a difference would this make in your cash flow vs how much would it cost in fees and hassle? Would it make it a truly profitable property or would it just make the numbers less mediocre?
4. Since you don't need the capital now and won't pay taxes on the sale, I think you have the right attitude. You have time to do your research and see which direction you want to go. I don't typically advise letting that amount of money just sit, however. There are other, more liquid, options you could pursue to put your capital to work without it being locked up long-term. You could put some of it in an indexed ETF, for example, which would allow you to pull it out at-will with minimal fees (I believe the Vanguard S&P 500 index ETF has an expense ratio of like 0.05% or less).**I'm not personally advocating this investment, but using it as an example of a relatively cheap, liquid investment with historically positive returns. If you're wanting to deploy your capital in the very near future, of course, this option is less useful. Always do your own due diligence on any investment.**
-My point is that, if you don't want to jump into an REI investment right away, look at other options for earning compound interest that would allow you to pull your capital at your discretion (so, not hedge funds etc). I personally think REI is one of the best places to stash your cash, but everyone works on their own timeline, so just be aware there are options out there that don't leave huge chunks of capital languishing in your checking account.
5. A point of my own: Your taxes are NUTS. That's a huge waste of cash flow every year. If you invest out of state, you'll pay approx double the residential rate, but that can still be far, far lower than what you're paying if you invest in a state with low property taxes.
-SmartAsset has a great tool for comparing property taxes in different areas. I'd recommend putting in San Antonio with the value of your current prop and then comparing to other markets. For example, if you put in Birmingham, AL and double the tax bill on a $120k property (a higher-than average price tag for a B/B+ cash flow property here) it still comes out waaaayyyyy lower than the figure for the same value property in San Antonio or Austin. Take a look and see what you could save if you went out of state: https://smartasset.com/taxes/property-taxes
While I, of course, think turnkey is a fantastic way to start an REI career - and a good way to get a portfolio of reliable passive-income-producing assets under your belt - there a billion right ways to do REI. If you're not ready to dive into anything right now, use your flexibility to do your research and vet your options. Jumping into a new property just because you feel like you should be doing something is rarely a good move.
Figure out what your goals are for your investments, how much time/effort you want to devote to them after you cut a check, and how much control you need to feel over the day-to-day. Can you invest out of state or do you need to be able to see the property? Do you want to do some hands-on rehab work, or do you want a professional do take care of it? Do you want to be a landlord, or do you just want to collect rent and pay someone else to handle tenants and maintenance? Do the work of figuring out where you want to go and be brutally honest with yourself about where you are right now. REI will still be here when you're ready to take the plunge ;)
Best of luck!
Clayton
Glad you weight in:
1) Its not my only capital as I said before. No rush and taking the safe path and learn how the market in Austin is for my investing criteria. I want to keep a close eye on my investments, so investing on a property above 30 min driving distance is not an option, at least for now. Agreed on C/D areas, not a fan of them even, too much headaches!
2) Understood. Just so you have an idea, I purchased my house for 340K, estimated when refi one year ago for 425K, my neighbor purchased a similar house for 410K six month ago, one is selling now for 435K with less footage and no pool, another is selling for 550K with no pool and about one more bedroom (3400 sqft).
3) It will be mediocre profit, since I already invested 8K on closing cost for the previous refi, another one will not make sense. That was my point on the refi from 30 to 20 years a year ago, but I wasn't expecting to sell so soon.
4) Agreed. Not 100% sure what will I do with my capital at this point, first I need to find a place, rent, and sell. I need to talk to a CPA for sure because I will be generating a lot of income at one time from my current employer if I leave. Any suggestions?
5) Thanks for the great advice! I was able to submit a protest from my current property, and got somewhat an average deal. They adjust my taxes as an average from the previous year and current year, so less taxes, and it will not go up for two years ( If I don't sell obviously). Well worth the experience of protesting the taxes.
As far as figuring out my approach to investing, I had goals set-up already, but like anything else in life, we need to adjust, and this adjustments is a great opportunity for me to continue that path. Before, I was settle on paying loans and continue with my two properties in Puerto Rico for two more years until getting enough cash to boy another property, now I can expand that into a house hacking (duplex or triplex) and continue from there, having 5 doors or more in less time than expected. Love to hear from investors about that!
I don't think there is been any real discussion about the most important thing concerning your decision, which is investment options available. If I were you, I would not sell anything, until I know for sure that I could acquire property meeting my investment criteria (price, quality, rental rate, etc) . Discussing this in general terms then is of limited usefulness. If you sell now, not only will you pay taxes on the sale, but there's no guarantee that you'll locate an investment that will suit your needs.
Each investor make decisions among options available to them at the particular time it's available. And options that are available to me may not be available to you and vice versa. So, I would suggest not making any hasty decisions until you have an Austin property/offer accepted and contract before you consider selling your property in San Antonio.
I've invested in Austin since 2003 and I can tell you that locating a deal in this market right now that will cash flow will not be easy. As rents do not rise equivalently with prices, once 3s hit the $115k price point and 4s hit $120k price point your cash flow generally with become non-existent.
Though I think it may be possible to still locate cash flowing property in Austin, it will be much more difficult to do than pre-2011. Keep in mind, you'll be selling right after a peak (eat. 2016) and also buying into a market that's in the same phase of the market cycle. Better to move your money into a market that's experiencing a bottom (Houston is closer).
- 9yClayton MobleyPro MemberBirmingham, AL · Member since 2014 · 875 posts · 947 votes
@Josue Vargas With regard to the benefits of putting money into your 401k etc, I was talking mostly about shielding your influx of cash from income taxes. If the income you're referring to is all in your ESOP, you have some options. The first thing to consider is your vesting. If you are not 100% vested in your ESOP (check your plan docs to see what the vesting schedule is) and you're not set on leaving your job right now, it might be better to sit tight for a while until you get to 100%.
Once you do leave, and since you're not 'retiring' from the employer, just leaving, you can leave your ESOP where it is for up to six years (I believe, any retirement pros out there feel free to correct me here!). Then you can take equal annual (or more frequent) distributions for up to five years, which would spread it out a bit. You can roll these distributions into a traditional IRA or 401k to avoid taxation (if you go Roth you have to pay income taxes now, but not when you withdraw). If you take any of the ESOP distributions as cash, you'll pay income tax PLUS a 10% penalty if you're younger than 59.5 years old. Here's a resource for ESOP basics, distribution and rollover rules:
https://www.nceo.org/articles/esop-participant-dis...
Depending on how you take distributions, you could build up your retirement accounts over time and invest in REI through those accounts as well as outside. You've got a lot of moving parts, but also a lot of options. (Also, just to be clear, investing in real estate through an SDIRA isn't a loophole, it's a legitimate strategy. You'd need guidance, and it isn't right for everyone, but don't feel like it's something you shouldn't pursue because the IRS will see it as 'cheating')
In the end, paying a lot of taxes, while annoying, just means you're doing well - you have income or your investments are producing profit. And taxes are what is necessary to have, like, roads and schools. That being said, if you're looking at a large windfall, you may be surprised at what your tax bill turns out to be, and that money could be put to better use in investments and planning for your future.
If your retirement is pretty well set up, then yeah you might also look into a 529 plan to pay for your son's tuition etc. If your retirement funds/strategy are lacking, then I'd focus on that first (between the two) because an even better gift than free tuition is not having to support your parents when they're old and need care. Talking to a CPA about what tax and investment strategies will put your capital to work is honestly your first step. There are so many moving parts here with your ESOP, 401k, and the potential use of an SDIRA, that you just need professional advice - I am but a humble turnkey provider ;)
If you want to hang onto cash for investment, then I'd say make it the $90k from the sale of your property, since that's tax-free already. Worst case scenario it sits in your checking account not earning interest. It's the additional income you're looking at that needs to be strategized. But again, a tax bill just means you made money, which is never something to complain about! Start from that attitude and then see what you can do to whittle that bill down with strategic allocation and deductions.
If you're invested in the stock market, you might also talk with your CPA or an investment advisor about the possibility of using a tax-loss harvesting strategy to lock in taxable losses on stocks that have dropped in value and then replacing them with other highly-correlated stocks to preserve your market exposure. It isn't for everyone, but it is simpler than it sounds, it just takes planning. Here's a quick rundown of the strategy:
http://www.investopedia.com/articles/taxes/08/tax-...
I don't have a CPA rec for you, sorry, since I think it's something you have to feel out for yourself. Someone that you're comfortable with, who is happy to answer questions, and who can explain things in a way that makes sense to you. There are several threads here about CPA selection, so this might give you some good ideas about what to ask and what to avoid:
https://www.biggerpockets.com/forums/51/topics/704...
https://www.biggerpockets.com/forums/48/topics/401...
https://www.biggerpockets.com/forums/51/topics/119...
OK I have GOT to get off BP for the day - such a black hole, this place!
Since it sounds like professional help is the first order of the day, use BP to suss out some recommendations from investors who have more experience with the types of investing you're looking at, or start a new thread asking for recs.
Best of luck!
- CPA · Miami, FL · Member since 2015 · 134 posts · 83 votes9y
@josue vargas, If you ask my husband, he'll say "it is the time to sell!". If you have lived in the property for at least 2 of the 5 years previous to the sale, then you wouldn't even have to worry about paying taxes on the 90k gain. You could sell, move to the new city, rent while you find something you like, and maybe by the time you find something, prices would have adjusted down a bit.
Note: Remember 1031 exchanges apply to rental property.
Good luck!
-Ana
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Clayton Mobley:
@Josue Vargas With regard to the benefits of putting money into your 401k etc, I was talking mostly about shielding your influx of cash from income taxes. If the income you're referring to is all in your ESOP, you have some options. The first thing to consider is your vesting. If you are not 100% vested in your ESOP (check your plan docs to see what the vesting schedule is) and you're not set on leaving your job right now, it might be better to sit tight for a while until you get to 100%.
Once you do leave, and since you're not 'retiring' from the employer, just leaving, you can leave your ESOP where it is for up to six years (I believe, any retirement pros out there feel free to correct me here!). Then you can take equal annual (or more frequent) distributions for up to five years, which would spread it out a bit. You can roll these distributions into a traditional IRA or 401k to avoid taxation (if you go Roth you have to pay income taxes now, but not when you withdraw). If you take any of the ESOP distributions as cash, you'll pay income tax PLUS a 10% penalty if you're younger than 59.5 years old. Here's a resource for ESOP basics, distribution and rollover rules:
https://www.nceo.org/articles/esop-participant-dis...
Depending on how you take distributions, you could build up your retirement accounts over time and invest in REI through those accounts as well as outside. You've got a lot of moving parts, but also a lot of options. (Also, just to be clear, investing in real estate through an SDIRA isn't a loophole, it's a legitimate strategy. You'd need guidance, and it isn't right for everyone, but don't feel like it's something you shouldn't pursue because the IRS will see it as 'cheating')
In the end, paying a lot of taxes, while annoying, just means you're doing well - you have income or your investments are producing profit. And taxes are what is necessary to have, like, roads and schools. That being said, if you're looking at a large windfall, you may be surprised at what your tax bill turns out to be, and that money could be put to better use in investments and planning for your future.
If your retirement is pretty well set up, then yeah you might also look into a 529 plan to pay for your son's tuition etc. If your retirement funds/strategy are lacking, then I'd focus on that first (between the two) because an even better gift than free tuition is not having to support your parents when they're old and need care. Talking to a CPA about what tax and investment strategies will put your capital to work is honestly your first step. There are so many moving parts here with your ESOP, 401k, and the potential use of an SDIRA, that you just need professional advice - I am but a humble turnkey provider ;)
If you want to hang onto cash for investment, then I'd say make it the $90k from the sale of your property, since that's tax-free already. Worst case scenario it sits in your checking account not earning interest. It's the additional income you're looking at that needs to be strategized. But again, a tax bill just means you made money, which is never something to complain about! Start from that attitude and then see what you can do to whittle that bill down with strategic allocation and deductions.
If you're invested in the stock market, you might also talk with your CPA or an investment advisor about the possibility of using a tax-loss harvesting strategy to lock in taxable losses on stocks that have dropped in value and then replacing them with other highly-correlated stocks to preserve your market exposure. It isn't for everyone, but it is simpler than it sounds, it just takes planning. Here's a quick rundown of the strategy:
http://www.investopedia.com/articles/taxes/08/tax-...
I don't have a CPA rec for you, sorry, since I think it's something you have to feel out for yourself. Someone that you're comfortable with, who is happy to answer questions, and who can explain things in a way that makes sense to you. There are several threads here about CPA selection, so this might give you some good ideas about what to ask and what to avoid:
https://www.biggerpockets.com/forums/51/topics/704...
https://www.biggerpockets.com/forums/48/topics/401...
https://www.biggerpockets.com/forums/51/topics/119...
OK I have GOT to get off BP for the day - such a black hole, this place!
Since it sounds like professional help is the first order of the day, use BP to suss out some recommendations from investors who have more experience with the types of investing you're looking at, or start a new thread asking for recs.
Best of luck!
Thanks so much for the links, advises, and recommendations! Like a classic comedy film, its all serious until the last moment and then boom! lol I can't thank enough for your posts....
- Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Ana Garcia:
@josue vargas, If you ask my husband, he'll say "it is the time to sell!". If you have lived in the property for at least 2 of the 5 years previous to the sale, then you wouldn't even have to worry about paying taxes on the 90k gain. You could sell, move to the new city, rent while you find something you like, and maybe by the time you find something, prices would have adjusted down a bit.
Note: Remember 1031 exchanges apply to rental property.
Good luck!
-Ana
Thanks for the advice... how the 1031 exchange applies to my rental property? The rental property that is not rented yet and I'm about to sell??
- CPA · Miami, FL · Member since 2015 · 134 posts · 83 votes9y
Josue, a 1031 exchange applies when you sell a rental property and purchase another for investment purposes. Keep in mind that certain conditions must be met. For example, the new property must be purchased no later than 6 months after selling the current rental. You also have 45 days to identify the property for the exchange.
- 9yDave FosterBusiness MemberQualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
@Josue Vargas, Actual rental income is not a strict requirement in order to be eligible for a 1031 exchange. In order for that property to be eligible for a 1031 you must have bought it with the intent to hold for productive use. There is no statutory holding period before it qualifies either. However, actual rents and length of time held can both help you demonstrate your intent.
If you're intent was to hold then it will qualify for a 1031. But beware, you cannot do a 1031 on your own. You must use the services of a Qualified Intermediary who handles the 1031 portion of the transactions. Your QI must be in place prior to the close of your sale.
The 1031 Investor5137 Reviews - Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes9y
Originally posted by @Ana Garcia:
Josue, a 1031 exchange applies when you sell a rental property and purchase another for investment purposes. Keep in mind that certain conditions must be met. For example, the new property must be purchased no later than 6 months after selling the current rental. You also have 45 days to identify the property for the exchange.
Thanks for the advice. This is not a rental, its my primary home.
- CPA · Miami, FL · Member since 2015 · 134 posts · 83 votes9y
@Josue Vargas, see post by @Dave Foster. See if he or another qualified intermediary can help you achieve a 1031 exchange based on "intent", if that is what you decide to do. Feel free to send me an email or call me if you want to discuss further. I would me more than happy to help!
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