Henry has a great idea. OR you could sell them with owner financing. OR do a hybrid of the two. Stay in the house for 2 years and then sell it with owner financing!! You have a steady income for the next 30 years without the headache of tenants.
A great idea? Paying 23.8% taxes selling it all at once, instead of 15%? Do you understand how capital gains taxes work?
You can't seller finance mortgaged properties, there is a due on sale clause, the bank calls the loans...more over your expectation that I'd have steady income for 30 years is strange. You do realize people will refinance the properties as soon as rates drop no?
If your single. Do 2 out of 5 years. Sell your current primary. Move into the next house with the most gain. Sell it in two years. Etc.
The section 121 exclusion doesn't apply, periods of non qualified use on rentals. I would think a CPA would know that...
If you're already going to get rammed with Capital Gains tax anyway, why only sell them off slowly? Sounds like you're at your wits end here so it may be like ripping off a band aid, just getting rid of all of them at once. The longer that you hold onto these in our area, the better chance that the city/state is going to pass another anti landlord law.
The longer that you hold onto these, the longer that you're not able to get into those index funds or other stocks. From just this small article, I think you just ride off into the sunset and go onto your next adventure. Leave the landlord burdens in the past.
Capital gains taxes are higher if I sell all at once, 15% vs 23.8% due to the size of capital gains income if I sell all at once. I also want to fatten them up still slowly for now, so that I can cash out a specific amount of equity after paying taxes and transaction costs.
Makes you question whether real estate is worth it as a LONG term investment. It's great buying in 2012 and riding it until 2022 with leverage. 10X your money, but might be good to get out after a while, I have another thread about that.
I am on the same boat with that opinion LOL
Yeah, and I wish I had realized that in 2021/2022 and sold. Back then it was part of my retirement plan. As I get older, I'm getting more and more tired of dealing with tenants, contractors, neighbors, etc. I've also wanted to escape Seattle but managing properties forces me to stay here. Hiring a PM would take all of my profits for what is a part time job to a PM.
As I've gotten into the stock market in a safer way in the last year (index funds, quality companies, etc.) I'm starting to see the stock market is truly passive, liquid, etc. I don't have a 10% cost to sell a property, months of waiting, etc. I can easily sell in an instant and for free. I'm not tied to an area. I can travel and be free from hassles of tenants, contractors, etc. Real estate is more of a business than an investment...I want truly passive at this stage.
@Nicholas L. I'm scratching my head on that one... Yeah, its only the ones looking to buy that are affected... They are also the ones setting the market.
Lets face it, all real estate is really purchased by the monthly payment. the properties out west, more so pacific northwest, are dropping hard since their property taxes are relateively low and most of their PITI is the mortgage. So, since more of the payment is interest now, buyers just afford only lower total values...
The people staying in place are moot --- other than maybe helping to keep inventory low.
They're setting a market in a low transactional/low liquidity environment. In any (traded) market environment, you remain suspect when liquidity is low.
The mortgage trap is very real, and 2023 showed us it's not an inventory problem-- it's a rate problem. Go make mortgages 5% and see how many homebuyers are now amenable to selling. That alone will make inventory tick up, and you'll actually and likely see prices fall after a furious but short uplift. What happens when inventory goes from 3.5 months to 5 months to 7 months quickly as in within 6 months? Sellers will have to price lower. And in my opinion, this is how the RTP will tighten. Rent will slightly move up, as house prices will slightly move down(and net mortgages lower).
How do you figure this? Prices didn't fall when rates were 3%, much lower than 5%. Your theory that sellers would then list and prices would fall is strange to me. Sellers were listing in 2021 too, and they don't sell to go live in a box under a bridge, they trade up. Supply curve was essentially left unchanged as a result. Only demand doubled. As such prices rose. 5% rates would do the same. Sellers sell to trade up. As a result they put a house on the market that there is a buyer waiting for, but they then become a buyer again for house that they now want, and that new house they bought also had someone waiting for it. So instead of 2 buyers for 2 houses, one each, there are now 3 buyers and only 2 houses for sale. The person the seller buys from will also want to buy a new home.
That's a completely different environment. It's comparing apples to oranges, you literally went from a 5-day work week to complete remote work and housing as the #1 sought after target for any individual in America. Coupled with a massive money printing situation and savings/income at levels we haven't seen ever.
Now, you're going from 7% rates to 5% rates. With debt higher than ever, and savings to below pre-pandemic levels. How are these two situations anywhere related? Go ask a guy who bought a house in Q4 2020 at 3% if they'd pay 5%, they'd scoff at it. Go ask anyone in the last 18 months if they'd take 5%, they'd do whatever it takes. Recency bias is huge.
The #1 reason house prices are up is location and supply in that location,or lack thereof. What would make those house prices dip? You build more or more people open to selling. How do you get to that? You make rates lower or physically build more. The impact of rates are usually not drastic over night-- H2 '22 showed otherwise-- but this duration of high(er) rates will have it's impact later. I'm willing to bet in most markets, as soon as rates get low(er) to say 5% we'll see inventory pick up. The inventory/supply increase will create a tighter market.
Quote from @V.G Jason:
"you literally went from a 5-day work week to complete remote work and housing as the #1 sought after target for any individual in America. Coupled with a massive money printing situation and savings/income at levels we haven't seen ever.
"
You say you went from a 5 day work week to complete remote work? Most of the US aren't office workers...it wasn't complete remote work for everyone nor was housing suddenly the #1 sought after thing in the country. Those are quite the claims but completely untrue. Money printing also didn't affect the supply of real estate, real estate is driven by supply and demand. Supply was still low from all the lack of building due to the last crash. Rates dropped, people who were high income white collar workers could now move anywhere. That increased demand where there was limited supply. I don't think you understand the micro economic factors of real estate pricing.
Quote from @V.G Jason:
"Now, you're going from 7% rates to 5% rates. With debt higher than ever, and savings to below pre-pandemic levels. How are these two situations anywhere related? Go ask a guy who bought a house in Q4 2020 at 3% if they'd pay 5%, they'd scoff at it. Go ask anyone in the last 18 months if they'd take 5%, they'd do whatever it takes. Recency bias is huge.
"
You don't take into account appreciation of homes that they are sitting on, 5 % rate or not. A 5% rate when you have a 40% down payment using your equity makes the difference. Using your logic, people would not have bought homes for the last 12 years prior to the pandemic. I had primary residences at 4.375 in 2014...despite getting much lower rates prior to that, prices have also come down 20% in my area, because as demand dropped due to rates, prices came down too. Sure rates are higher but prices are lower. A 5% rate is not unreasonable, in fact it's a historical norm. In the 80's the housing market still quadrupled in many areas despite 18% rates.
Here new housing developments have sold out before they are even finished. At 7% rates...big difference, here my fellow tech brothers and sisters are easily clearing 3-400K salary between husband and wife. Rates aren't as much of an issue, in fact my buddy and his wife bought a house at these 7% rates and sold their old house. Life circumstances, tired of their neighbors, forced them to move. Ironically, the neighbors that were issues moved on after he bought a new place.
Quote from @V.G Jason:
"The #1 reason house prices are up is location and supply in that location,or lack thereof. What would make those house prices dip? You build more or more people open to selling. How do you get to that? You make rates lower or physically build more.
"
You make a lot of claims but don't seem to truly understand microeconomics. House prices are driven by supply and demand, as with any other good. Not by their location as you claim, but because of the demand in that location and lack of supply in that location. Not by location and supply as you claim...
And again, you seem to for some reason think that when people sell their homes, they go live in a car or something. They sell and buy a new home...just like they have been for the last 14 years. I don't think you have a clue what you are talking about, you seem to struggle with the concept of supply and demand, you seem to think everything is about supply and location. No...it's supply and demand that drives housing prices and if your theory was true, everyone in history would have sold and lived in a box after selling. Makes ZERO sense. Low rates created high demand while there was limited supply due to under building as a result of 2008 crash. Your theory is poorly thought out and doesn't match any actual microeconomic principles actually taught anywhere...
no need to squabble over the charts above, they are actually the same, both by Dr Robert Shiller at Yale, the only difference is that one backs out inflation. Shiller did his PHD at MIT in 60s w fellow student Dr Jeremy Seigel, whose latest edition of Stocks for the Long Run does a deep dive into US inflation, basically we had none from 1809 till 1945, house prices flat, then post WW2, lots of inflation and house prices up, if you remove the inflation, the red line in last chart above, house prices nearly flat again. Almost all real estate historical studies show all real estate appreciates at rate of inflation. The famous Amsterdam study looked at bills of sale for >400 years on canal front homes in Amsterdam, and price appreciation exactly mirrored inflation rate, ie residential real estate or any real estate never goes up in Value only in Price because the currency its denominated in loses its value at same rate. As real estate investors we carefully surf the micro-fluctuations over several years and use leverage to amplify them.
It would be horrible if real estate would outpace inflation! Think about the consequences of that over 100 years. Most home buyer's first name would either be Jeff or Elon...
The "magic" comes from leverage, which gurantees an almost double digit return on your downpayment just from deleveraging. Also the ability to pull out equity, improve assets to force appreciation and from improving cash flow over time. And tax advanatges. Plenty of magic.
Now's a fine time, 2010-2022 was just an absolutely amazing time. The best time ever. You're still on the cusp of a net inventory short, massive migration from the global side to America, and a fiscal policy that's going to create a greater wealth divide. If you think that's bearish for hard assets, I'd beg to differ. Granted every RE investment is case by case, but the net view should be hard assets & infrastructure should be the long view.
The low rates from 2008 to 2022 helped a lot. Real estate took until 2012 here to bottom out. If rates are low, it's a good time to buy and stay in. If rates are high and stay high, it's time to get out IMO. If rates end up staying at 5 or 6% I think appreciation will slow drastically. We will have another event eventually where they have to lend money for the price of a VCR, this won't be the last of the low rates we enjoyed...
@Nicholas L. I'm scratching my head on that one... Yeah, its only the ones looking to buy that are affected... They are also the ones setting the market.
Lets face it, all real estate is really purchased by the monthly payment. the properties out west, more so pacific northwest, are dropping hard since their property taxes are relateively low and most of their PITI is the mortgage. So, since more of the payment is interest now, buyers just afford only lower total values...
The people staying in place are moot --- other than maybe helping to keep inventory low.
They're setting a market in a low transactional/low liquidity environment. In any (traded) market environment, you remain suspect when liquidity is low.
The mortgage trap is very real, and 2023 showed us it's not an inventory problem-- it's a rate problem. Go make mortgages 5% and see how many homebuyers are now amenable to selling. That alone will make inventory tick up, and you'll actually and likely see prices fall after a furious but short uplift. What happens when inventory goes from 3.5 months to 5 months to 7 months quickly as in within 6 months? Sellers will have to price lower. And in my opinion, this is how the RTP will tighten. Rent will slightly move up, as house prices will slightly move down(and net mortgages lower).
How do you figure this? Prices didn't fall when rates were 3%, much lower than 5%. Your theory that sellers would then list and prices would fall is strange to me. Sellers were listing in 2021 too, and they don't sell to go live in a box under a bridge, they trade up. Supply curve was essentially left unchanged as a result. Only demand doubled. As such prices rose. 5% rates would do the same. Sellers sell to trade up. As a result they put a house on the market that there is a buyer waiting for, but they then become a buyer again for house that they now want, and that new house they bought also had someone waiting for it. So instead of 2 buyers for 2 houses, one each, there are now 3 buyers and only 2 houses for sale. The person the seller buys from will also want to buy a new home.
no need to squabble over the charts above, they are actually the same, both by Dr Robert Shiller at Yale, the only difference is that one backs out inflation. Shiller did his PHD at MIT in 60s w fellow student Dr Jeremy Seigel, whose latest edition of Stocks for the Long Run does a deep dive into US inflation, basically we had none from 1809 till 1945, house prices flat, then post WW2, lots of inflation and house prices up, if you remove the inflation, the red line in last chart above, house prices nearly flat again. Almost all real estate historical studies show all real estate appreciates at rate of inflation. The famous Amsterdam study looked at bills of sale for >400 years on canal front homes in Amsterdam, and price appreciation exactly mirrored inflation rate, ie residential real estate or any real estate never goes up in Value only in Price because the currency its denominated in loses its value at same rate. As real estate investors we carefully surf the micro-fluctuations over several years and use leverage to amplify them.
It would be horrible if real estate would outpace inflation! Think about the consequences of that over 100 years. Most home buyer's first name would either be Jeff or Elon...
The "magic" comes from leverage, which gurantees an almost double digit return on your downpayment just from deleveraging. Also the ability to pull out equity, improve assets to force appreciation and from improving cash flow over time. And tax advanatges. Plenty of magic.
I started buying rental properties in 2010. I had 11, now have 8 single family homes. 4 of which I bought in 2021 using cash out refinances from the other 4.
Cash flow is 48K a year after accounting for vacancy and repairs, capex, etc. (I set aside 20K from the rents after mortgages are paid, so basically I take in 68K a year, save 20K for vacancies, have 48K left over, etc.).
Principal pay down is 67K a year.
Appreciation is 500-800K a year in a good year. No appreciation last two years due to rates. But it was before and it's picking up again now.
Properties are in Washington state, greater Seattle area but not in Seattle proper, not landlord friendly area still....
I'm early 40's and tired of being a landlord or being tied to the area I don't want to live in anymore due to having to manage the properties (PM too expensive). Been a landlord since my late twenties or so.
I have several million in property and couple or so million in equity in them. I also have a couple million cash on hand for a total of a few million. Was more until Fed raised rates and houses here dropped significantly in price, eroding some of my equity.
I've been investing in VGT and JEPQ for the last year or so and for the first time in my life, have NOT lost money in the stock market like I did when I was merger investing, options trading, etc.
I think at this age, I'm not a young man anymore and tired of dealing with tenants, toilets and Karen neighbors.
I also am exposed to lawsuit risk which I don't like. Eviction moratoriums in the future could wipe me out. I want to de-leverage, as the government in my area has spun out of control. I'm tempted to let these fatten up a bit more, slowly sell them off one at a time so I end up netting 4-5 million after transaction costs and capital gains taxes. I don't want to 1031 anymore. I want my freedom and time back. No more stress of disputes, unreasonable requests, Karen neighbors, people trashing the place sometimes, etc.
As I get older I want less hassle, risk and stress. I could put 4 million into stocks and live like a King while growing my net worth truly passively.
I've met people who sold and made up the taxes in the stock market and said they don't miss being a landlord.
Thoughts? I'd keep my primary residence and pay it off. But I'd sell the rentals one at a time as there are issues, vacancies, capex, etc. This lets me slowly fatten them up as I sell them off over time. I can compound this in the stock market quickly with index funds. I have no intention of ever getting married or having kids. I intend to leave all my money to one of my ex-girlfriends who I was with for a long time.
Note: I don't want or need to be spammed with 20 messages a day from realtors trying to sell my houses for me. I'm a realtor myself....
I had a handful of properties that I cash out refinanced in 2021 to buy more properties. So I bought a few more using that cash. The properties went up in value a bit then back down due to interest rates going up. Right now if I sell them, I'd break even after transaction costs from selling. That is, the few new ones I bought in 2021 would basically give me my money back, maybe a little more, after factoring in transaction costs of selling.
How will that affect my capital gains taxes with 1) these NEW properties I bought with the CO refinance money and 2) how will it affect the houses I pulled money out of to buy these new ones?