Advice on Selling Investment Property vs Not??

Question

Dave Foster · Answer

@Laura MacDonald, Preparation is the key to great investing.  If you're not prepared on all fronts you're going to be chasing the market and solutions.  And overextension and no contingency preparation is what caused 99% of the losses in 08.  You're in good shape.  The investor will be there tomorrow.  Prepare now so your exposure is less (husbands job) and then look at doing something.

When you do sell take advantage of the 1031 exchange to shift your holdings and increase cash flow without paying tax on the profit from the sales.

Laura MacDonald · Answer

@Kerry Baird "Hello!" to another homeschooling mom of too many kids!  :). Thanks for your reply....I love what you have done in terms of the business with the vacation rental that is exposing your kids to the ins-and-outs of property ownership and management!  That is awesome.  Thank you also for sharing your experience with selling.....I believe you and @Dave Foster are absolutely right.....I need to take the time to plan and look into a 1031Exchange.  Thank you both for taking the time to respond...it is much appreciated!

Kerry Baird · Answer

@Dave Foster, thanks!

If nothing else, they’ll know how to make hospital corners! 😂

Kerry Baird · Answer

I’m also a homeschooling mom...only have 3 kids, but it is still plenty.  I decided to sell a set of properties in Texas last year.  These were joined units, sort of like a duplex, but on two loans, two deeds.  Not that it mattered for this discussion.  :D

We bought them brand new in about 2012 and they’d been steadily occupied.  The property taxes were getting out of hand, and we were just starting to get more maintenance calls.  We got about $100k over what we paid, and then had to send the agent his commission of about $13k.  And then the tax hit.  Depreciation recapture.  Oh yes, the tax bill.  And because we didn’t tell our money where to go, it seems to have gone.  Well, I did buy two properties that are closer to our house; one of these I turned into a vacation rental.

As an aside, this vacation rental has worked really well for me and the kids.  They have helped me to get it decorated, particularly the kids’ room, at Target. We have had creative discussions about other business ideas that can be paired with this one, such as the need for photography...so we thought to place business cards for my photographer friend at my Welcome Desk.  My youngest daughter wanted to bake cookies for the guests (we haven’t done that), wedding parties, makeup such as Mary Kay or Monat offerings, as some of our brainstorming. I’m using the funds in and expenses out for spreadsheet lessons. On the days when our cleaning crew isn’t able to, we do the laundry and cleaning and pay ourselves the cleaning fee ($120 each clean).

So that was something we did, without an advance plan to engage the kids in business...and it is doing well for my homeschooling crew.  I’m not suggesting that you do this, necessarily, but I am suggesting that you tell your money where to go. And also to prepare for the tax bill and possible real estate commission that is likely going to come your way if you do sell. I’m sure you remember that you can do a 1031 exchange, where you do a “like kind exchange.”  This takes more time and planning, but would save on that onerous tax bill.

All the best to you! Stick around and refresh yourself on the newest in real estate!  Your kids, like mine, are old enough to learn some great lessons by having experience with rentals.

Mary M. · Answer

Do not sell. Wait until you are better situated financially to buy more, but keep what you have!!

Laura MacDonald · Answer

@JDMartin Thank you for your response and the perspective. You are right regarding the 10-year loans, and right again in terms of the reason for that line of thinking.  I need to get my head back 'in the game' but am having a hard time doing so.  If you were ever open to a quick 15 minute chat (or knew of anyone who might be?) just to bounce ideas around based on my current circumstances, it would be much appreciated.  Not looking for a paid group-training type thing....more just a friend/mentor in the industry who is further along than I am.  When I started in the industry (about 15 years ago!), i shadowed a few successful guys and offered my help to do any of their legwork/research/etc for free, and learned a TON that way.  Just hoping to get a few minutes with someone 'in the thick of it' to bounce some thoughts around.  Thanks again for your time responding and hope you are enjoying the holidays.  Laura

JD Martin · Answer

Question: why 10 year loans? That's going to be principal and interest heavy, where you will be lucky to not have negative cash-flow during that 10 years. You can always early-pay on a 30 year loan. If you are thinking "because we don't want to have any loans at 65", that's simple - save all the cash flow and pay in one lump sum if you are financially set at 65. Yes, you'll pay a little more interest (and get a little more tax benefit at the same time) but you will maintain maximum flexibility at at time when interest rates are at record lows.

As for selling, no good way to answer. If the 4 plex is loaded with equity, and you got the loans 17 years ago, you must have a pretty high (relatively speaking) interest rate. If they can make good cash flow and there's a lot of equity locked in, cash-out refinance and use the proceeds to buy another investment property.

Dave Foster · Answer

@Kerry Baird, I adore your "family business" model soooooo much!!!!!

Advice on Selling Investment Property vs Not??

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