Buying a Rental as Future Retirement Home

[Edward Jakubiak]

I own a relatively local rental that I want to sell and buy a potential retirement home. My daughter lives in Tampa so the gulf Florida coastal area would be okay. Also the Smokey Mountain area. I’m partial to NC in part due to the inflated Tennessee house prices.

What is a good strategy for doing this? STR vs long term rental is an issue. Both are not local but I'm barely breaking even with my local. I heard that Mgmt company percentage is very high in hot markets. Does supply and demand eventually bring it down to reasonable?

Thanks in advance!

Ed from Baltimore

[Dave Foster]

@Edward Jakubiak, Wonderful strategy you've got cooking.  A lot determines on your timeline for the actual move into the home.  But I wouldn't get too hung up on performance of the property as a rental if your end goal is to eventually live in it.  

You're going to be able to do a 1031 exchange from your rental now into the new property So you'll continue to defer all tax on gain and depreciation recapture.  And if you buy a property that you put into service as a str then you'll also get some personal use of the property in the year or two before you move in.  So the net difference of cash in your pocket isn't going to be very significant compared to the strategic goal of moving into your retirement home and getting to defer all tax for the remainder of your life.

So I'd focus more on where you want to be and then pick up the property that best accommodates your retirement.  Not the property that produces the best net income for 2 years.  Heck you may want to think about selling your rental and buying two vacation rental properties - one in the Smokys and one in the Bay.  Pack your duffle bag and stay in the one that's not rented.  We did this in between several vacation rentals and our boat for a number of years.  And were always able to maximize the rentals.

@Jason Kotsko can tell you about the market and str management locally here.  He's with a firm that has a huge vacation management presence.  And @Avery Carl, @Rhonda Blue - you guys are kicking it up in the Smokys.  What can you add to this string?