you might check with your EA/CPA... I think there's some federal tax implications between selling a personal residence at a loss, vs. renting one (and having to take capital gains... iirc, kicks in around year 3... and might require adjustments on your mortgage deductions assuming you took that)
Based on your experience with rentals, ability to absorb times between tenants, and potential to move back after retirement, I would vote rent it out until something changes to make a sale more desirable from your perspective.
Haven't read thru the entire thread so not sure if this came up, but are there big companies near you? Can you partner up with one of them and use the house for a corporate rental for long term stay foreign or out of town employees? You might not make as much, but the clientele will probably take care of the property much better.
In reply to PMRacing :
That's a good idea, but not gonna work in the old house.
Disclaimer: I read a lot about rentals, but I don't own any.
$1500 - $1800 on a $165 property (around 1% of value/month) is a red flag to me. Those who use rental properties as investments always talk about the 2% rule (so your rent would need to be $3300), or even 1.5%. 1% is low, especially in an area with low appreciation.
Then again, those investors are paying $$, not leveraging with a mortgage, so their potential for lost profits is higher.
Another way to look at it - if you were to move back to SC in retirement (which, as you said, is less than a 50% chance), would you want to buy this exact property again if you sold it?
If yes, I’d keep it.
In reply to ProDarwin :
Honestly the 1% rule is optimistic and the 2% rule is strictly a borderline slumlord property in most locations. It's almost universally people renting out houses for $800 a month that use the 2% rule. So they're renting out houses they paid $40,000 for. Or less! 1% is good, and is tough to get in a good property.
In reply to SVreX :
Rent.
Considering everything your tax position will be excellent even under the new tax laws. Sounds like you’ll have a lot of write offs to show a loss so you could come out really nice
Run it by a couple of tax people first. Don’t be fooled. The new tax laws have plenty of deductions especially in your case. However you need to find the right tax person. The best ones have many years of actual IRS employment experience. In spite of 77,000+ pages of tax code, The real deductions come from what is called legal precedent. That means it’s not in the books but it’s allowed. Only two ways to get it then. Hire those $1000+ an hour lawyers to find it for you. (better figure at least 100 hours or more). Or hire someone who used to work for the IRS long enough to learn about them all.
SVreX said:In reply to Sine_Qua_Non :
You're right. And I think they will continue to. Because investing in purchasing a permanent home is no longer a value. We'd rather spend our money on electronic gadgets, and complain about the 1% (who are the guys investing in the real estate we are renting)
Sometimes old ways still work.
Three things to consider
the population is growing, property is not. thus there will be greater and greater demand for property.
People are being squeezed by incomes that aren’t keeping pace with inflation and put into the position where they cannot afford to come up with the required down payment needed to buy. Thus more and more people will be in the rental market.
America still has two wars it hasn’t paid for yet plus a president and Congress anxious to spend money on the military, a wall, and infrastructure. Not to mention a trillion and a half additional debt. That is the perfect storm for inflation. In times of inflation ownership is king! Debt means little because the payments are fixed but income will increase.
Can the GA house be refinanced under an LLC? This might 'lock in' your 20k loss but it has benefits of added security, and extended leverage. The economy is going well right now, but if something happens (extended vacancy, job loss, etc) having multiple houses in your name could turn bad. Leverage isn't a bad thing from a landlord's perspective and It would suck to have an income issue with a rental house threaten your current house. What are eviction laws like in GA? Is it more friendly to a renter or landlords?
Approach it as if you were about to buy this home To be used as a rental (if refinanced, you would be) and do the math from that perspective to determine if it will be a good rental or not. I don't know all of the details, but it seems to me like the math might work, but its probably borderline. Seems like it would be a little close depending on time vacant, property management costs etc.
Renting out a home that you've lived in, and poured a ton of sweat equity into can be difficult emotionally. Renters definitely won't go easy on the place. The costs and work associated with a pool would concern me from a landlord's POV too.
You may pull in $8k/year in rent money, but if the hot water heater blows or a drain plugs up, that cuts into your plans. Got a good friend or family member that will act as property manager? If they don't act on your behalf for free, that cuts into you plans also.
If it were me, I think I would cut bait and run, start a new life in a new place with a little cash in your pocket and don't look back.
Dan
I've done the rent thing. I didn't like it. I'm glad I sold the property.
That said, I was my own property manager and the house was local. This is one of the reasons I hate people.
Having a property management company may be a deal changer as long as you can afford any repairs they pay someone else to do. I wasn't comfortable with some office know nothing spending my money.
One thing to consider when thinking about a house as an investment:
Transacting on a house (buy or sell) is just about the most difficult transaction type. It takes time, money, lawers, etc. Almost all other investments are more liquid than real estate.
It has a lot of consequences to think about.
One thing to consider if you sell it after years of depreciation your basis will be substantially lowered and capital gains on the sale will be taxed. Also I don't see Albany Georgia having a thriving economy in the foreseeable future. I may be wrong though.
OTOH tax savings as a landlord may be worth it over the long haul.
If you have to evict someone and the process takes 3 months then the house sits vacant for 3 more while repairs are made and a new tenant is found, can you comfortably afford both mortgages, utilities, taxes with zero additional income on top of your job?
if the answer is yes, then it’s pretty clear to me that rent is the correct way to go
Hi SVreX,
Given that you’re “6-8 years from retirement”, I think you should be planning back from that point. Taking everything into consideration, income property provides a slightly poorer ROI than stocks when it’s leveraged with a mortgage and a much poorer ROI than stocks when it’s owned outright.
However, income property provides excellent diversification and a possible reduction in volatility. There are a lot of moving parts (it sounds like you know most / all of them) but it plays out that the richer you are, the smaller the percent of your net worth you want to have in income property. Essentially, rich guys enjoy the luxury of being able to invest more aggressively because they can weather the down periods in exchange for increased overall returns.
I’m in California so the definition of rich is going to be different than that for GA / SC but once you’ve got half again to twice the minimum of what you need to get by in retirement, I think you should start throttling down your percent allocation in income property.
In reply to Ovid_and_Flem :
You really need some help regarding the tax laws and rental income. I’m not talking about the stuff you can read about and on line advice. I’m talking about things called legal precedent.
Yes you may need a tax lawyer to not only help you find it and how it applies but that can be a manageable expense if you have the relevant data already sourced.
Nope it’s not on the internet, at least not in a form that makes it easy to decide if it applies to your situation
My advice? Informally Talk to the secretary of a lawyer who specializes in property law, or talk (again informally) to a IRS agent with a lot (decades) of experience. One other possible source is read up on college professors teaching property law. Some are disbarred lawyers or lawyers who gave up the practice to find a life.( Property law is about as thrilling as watching a wall collect dust)
The legal precedent though are what can turn a loss into high profit.
In reply to frenchyd :
Actually a much more helpful resource are IRS Letter Rulings which basically are informal yet official interpretations of fact specific scenarios arising .from application of controlling statutes and court rulings. Precedent generally refers to court rulings/judgments in cases that have been litigated.
That being said, something as simple/common as renting a single family residence has well established "loopholes" that any competent CPA will know. Hiring a high $$$ tax attorney will be a waste of resources...a good CPA with a sharp pencil will be sufficient.
As far as seeking opinion of a legal secretary....NOPE. If a secretary/paralegal offers advice that amounts to asking them to practice law without a license.
Yeah, I'm not going there.
This is a simple single family house rental. There will not be any discussions with lawyers, paralegals, secretaries, IRS employees or any other such nonsense. Any tax preparer in the country could handle it.
In reply to SVreX :
You've already been an absentee landlord. You know the game. Merely a matter of weighing any tax savings against the hassles. And the long range plans/goals. Good luck.
I did not read every response, but have an opinion none-the-less. Rent it. It will be a great income after retirement. Real estate is the safest investment, they're constantly making more humans, not so with land, etc, etc. I have been a landlord on and off for the last 15 years. It is a PITA, but when it is going right, it is a great income for effort expended.
If its going to be cash flow positive then rent it out. Personally I would much rather have $700 per month cash flow my efforts fixing up a house than a $20,000 loss.
In reply to Ovid_and_Flem :
Everything you say is correct, yet the guys I know who are really well off now all started with such assistance. I’ve been told repeatedly informal conversations over a drink don’t constitute legal advice. Requests for appointments etc are just another way of saying pay me for my time.
At one point I tried to stay abreast with the IRS letter rulings but was overwhelmed. I suppose a really sharp tax preparer might be on top of all of those. I do know many CPAs miss big deductions and etc. my late sister was one and my tax preparer would find me legal deductions she didn’t know about
that’s why I’ve used him for so long. On average I’ve paid 2% federal and 3% state income tax
I think you're in a good position to rent. You don't need to sell this place, you have potential to make some money on renting, and you're experiences with renting in Florida will allow you to be a little bit more of a savy shopper with whatever management company you choose to use.
In reply to frenchyd :
Are you really Donald Trump or Warren Buffet incognito with those marginal tax rates?
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