1st Rental purchase and Exit - Expensive lessons

[James Adair]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $215,000
Cash invested: $20,000
Sale price: $435,000

my first ever rental purchase. Rode the equity wave- had some shaky tenants over this period at times, but I always collected rent!!

Cashed out in 2018 after the interest only feature on the loan expired. I figured, i could refinance, sell-out, or 1031 exchange to another property. I didn't much like the options for exchange, so I cashed out.

How did you find this deal and how did you negotiate it?

2005- home was MLS listed, and used a local agent

How did you finance this deal?

20% down Conforming loan - ended up with a 5 year ARM that had a 10 year interest only feature in 2008-2018.... the arm expired in 2013, and every year adjusted DOWN! what a ride.

What was the outcome?

cashed out

Lessons learned? Challenges?

Most of my gain was sent to the IRS! Cap gains plus the depreciation re-capture.... the recapture was the KILLER. never again. I should have been more patient, and moved that equity into something else that created more cash flow.

[Dave Foster]

@Jake Andronico, Depreciation recapture is often overlooked by investors.  It's a very nasty "pretend: benefit from the IRS that hurts bad when you sell if you don't 1031.

D