All Forum Posts by: Brett S.

Having lived in both scenarios, debt free (other than a personal mortgage) is frankly my preference.  Jobs can be lost, tenants can be hard to come by, tenants can get the government to provide them forbearance without forcing banks to do the same, etc...  Scary as hell (for me) to know the bills won't stop for certain when the income dies.

Others will have different opinions though and are more comfortable with risk.  I'm all equity now but even when I was leveraged I managed my debt to ensure that 50% of my portfolio could be vacant but still cover all of my expenses for all of my properties.

I owned a single family and went overseas for almost a decade and remotely managed it, as well as picking up additional properties.  However, I had an agent who I trusted intimately and who stayed with me the whole time, and frankly, did more than she should have done to help me out.

I wouldn't recommend anyone do what I did though.  There were enough moments when I wished I could have been local even then, and "local" took a 20 hour plane ride.  No thanks. 

I'd sell.  Especially given the market right now.

What does your IPS (investment policy statement) say to do?  Don't have one?  Go put one together.

Without one of those no one can tell you what you should do correctly and in any case you have no basis for valuing one persons advice vs someone else.

If you did have an IPS, it would most likely indicate that the recent run up in real estate prices means your RE portion of your investment portfolio is over weighted.  So in that way you most certainly sell.

The only reason you shouldn't sell at least some right now is if you have an expectation of 100% of your retirement portfolio is real estate rentals. Some people do that. Too undiversified for me though.

Another alternative is to sell some of the physical properties and purchase an equal amount of a RE mutual fund to allow you to rebalance your real estate portfolio with non-real estate investments more easily and frequently in the future.

I think you're focusing on the wrong thing.  Debt isn't for tax management (well, it can be, but only in cases such as borrowing your living expenses when you're sitting on tens of millions of dollars), it's for leverage.  

Certainly, paying taxes sucks, but you don't pay taxes without income and I'd rather get another dollar of income and pay tax on it vs not getting that dollar of income and giving it to the bank instead so I can avoid paying tax on it...

As some others have said - get a tax pro to look at your situation and maximize that, then focus separately on what to do with the cash.

For the cash, the question is simple to me - what does your written IPS say?  Don't have one of those?  Then that's the reason you're here on a board asking what to do.  Go put one of those together.  It's a whole separate subject I won't address here.

In summary, if your IPS says you need more equity exposure, then put your $700k there.  if it says you need more RE exposure, then put it there.  If it says you should leverage your RE, then use it to buy more, if it says you should de-leverage your RE, then put it there.

Having said all that, it's clear you are uncomfortable with the risk you have, so the my advice without knowing anything about your IPS (very dangerous, for you) is to pay off debt.

Nevermind - I found my answer already.  I get to either have a major hassle and basically beg the IRS to audit me or leave it alone and pay taxes on the promissory note amount.

Another bad 2020 item.  sigh.

I sold a rental property this year.  As I'm going through the paperwork to prepare for taxes, I noticed that about 20 years ago my tax accountant put the contractual sale price of the home onto the asset register and depreciated it accordingly.  However, I actually paid more than the closing paperwork says because the seller took a promissory note in parallel that is documented between us but not with the transaction paperwork.

I'm guessing I'd have to include it as an "improvement", if anything to get that into the basis for the house, since I can't go back and restate taxes after 3 years...  and risk an audit.

So I might just be out of luck.

Any thoughts?

Doh!  Should say exit, not ecot. Stupid fingers/phone. 

I asked this question in a different way a while ago but wanted to try again now that I have TurboTax forms fresh in my brain - if you have, say ($100k) of Suspended passive losses and you make +$75k net profit when you exit your last rental And stop being a landlord, do you get the remaining $25k as a deduction to ordinary income or does it expire?

I confess I’m a cpa (not the tax kind) but I can’t translate the documentation on this one and don’t want to find out I’m wrong after the fact. 

This decision is clear, as long as you're apples to apples (ie you're not debating buying a mansion vs renting a hovel) - but it depends on your desire for risk vs reward, and emotion vs financial logic.

Logic says you should rent vs buy.  Lowest risk is to buy vs rent, but it will cost you.

Putting down only a portion means leverage.  That is risk by definition.  

Decide what you're after...

What I would recommend to someone who asked me:

No kids and/or young and currently own rental properties -> rent a place, put half in a diversified stock / bond portfolio and put half in rental properties.

No kids and/or young and never have owned rental properties -> rent a place, buy a single rental property at 20% down, and put the rest in stock / bonds.

Older / have kids and/or aren't very mobile -> buy a reasonable house outright and put the rest 50/50 in stocks / bonds (unless you don't own rentals, in which cast just get one to experiment with).

I think I already know the answer, sadly, but just wanted to check in with the experts here:  I'm exiting about half of my portfolio as I head toward part time employment and eventually full retirement.  When I do that, based on the properties I want to keep I would end up with a net gain even though I would still have capital losses trapped in the portion that I want to keep.

Is there any way to hold off paying the capital gains until I sell the remainder of my portfolio that has the losses?  I know I can change the order of selling to hold the gains ones until the end and I know I could do an exchange into something new but I'd really prefer not to do either of those...

I won't hold my breath, but let me know if you know of something!

depends on state law.  read the fine print.  in michigan one of my two bathrooms in the unit broke / flooded with sewage.  they said I owed them a hotel.  I nicely pointed out that state law only required that at least 1 bathroom continued to function and I made reasonable efforts to repair the other, which I did.