Should I sell RE assets?

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stanthecaddy
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Should I sell RE assets?

Post by stanthecaddy »

Over the course of the last 10 years, we ended up with 3 rental properties other than our primary home. Two of the rentals were our prior primary, but we ended up outgrowing them.

We didn’t sell them to not incur the high transaction fees and we didn’t need the down payment unlocked, and despite using a property manager (no time/ interest to DIY) the rents for all three of them are greater than mortgage+expenses, so they’re self sustaining. We bought the houses in 2010,2103 and 2016 p and they have appreciated nicely as you can imagine.

Now, I’m a newish boglehead and have unwound all of my other active investments into a 90/10 AA. my question is that if i should keep the RE investments (for 10+ years) or sell them and incur the 6-8% transaction fees and invest the proceeds in the 90/10 AA.

We are in our early 40's and don't have any planned major cash needs. Ideally we retire by 50.
59Gibson
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Re: Should I sell RE assets?

Post by 59Gibson »

Keep in mind in addition to commissions, closing costs, any work to prepare for sale you have 2 big ones lurking... Depreciation recapture and Cap gains tax. Have you considered a 1031X?
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JoeRetire
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Re: Should I sell RE assets?

Post by JoeRetire »

stanthecaddy wrote: Sat Jan 22, 2022 1:19 pm Over the course of the last 10 years, we ended up with 3 rental properties other than our primary home. Two of the rentals were our prior primary, but we ended up outgrowing them.

We didn’t sell them to not incur the high transaction fees and we didn’t need the down payment unlocked, and despite using a property manager (no time/ interest to DIY) the rents for all three of them are greater than mortgage+expenses, so they’re self sustaining. We bought the houses in 2010,2103 and 2016 p and they have appreciated nicely as you can imagine.

Now, I’m a newish boglehead and have unwound all of my other active investments into a 90/10 AA. my question is that if i should keep the RE investments (for 10+ years) or sell them and incur the 6-8% transaction fees and invest the proceeds in the 90/10 AA.

We are in our early 40's and don't have any planned major cash needs. Ideally we retire by 50.
There's a reason you chose to keep the houses and become a landlord. Has that reason changed?

Compare the income stream you are getting from the properties to what you could earn in the market from the profits if you sold.
Make sure to factor in any tax benefits due to owning property and the additional work due to being a landlord.
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Re: Should I sell RE assets?

Post by Zeno »

59Gibson wrote: Sat Jan 22, 2022 1:22 pm Keep in mind in addition to commissions, closing costs, any work to prepare for sale you have 2 big ones lurking... Depreciation recapture and Cap gains tax. Have you considered a 1031X?
+1

This.

Have you looked into 1031 exchanges? We did that once -- long ago -- for a primary residence (Property #1) that we did not sell after moving to our next primary residence. We then rented out Property #1. When we sold Property #1 thereafter, we flipped the proceeds to another investment via a 1031 exchange.

1031 provides a way to keep kicking the tax can down the proverbial road.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

There's a reason you chose to keep the houses and become a landlord. Has that reason changed?
I’m convinced that the most effective investment for us is index funds, which wasn’t the case 5 years back.

The last rental was in 2020, and we did that to avoid a distress sale. The house went on market a week before thanksgiving and was rather soft. It has appreciated meaningfully since then.

The current setup with the property manager is great, we do virtually no work. And the status quo is comfortable, but I don’t want to make a big mistake. I’m also a little wary of having 4 houses I’m the same area, but it’s in a top 10 city.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

Have you considered a 1031X?


We don’t plan to buy another property at this time. That’s what the 1031x works right?
Topic Author
stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

Have you considered a 1031X?


We don’t plan to buy another property at this time. That’s what the 1031x works right?
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Re: Should I sell RE assets?

Post by Zeno »

stanthecaddy wrote: Sat Jan 22, 2022 1:53 pm
Have you considered a 1031X?


We don’t plan to buy another property at this time. That’s what the 1031x works right?
There is a wealth of information on the IRS web site as to eligible investments for a 1031. See, e.g., https://www.irs.gov/businesses/small-bu ... e-tax-tips.

It sounds as if you are passive landlords who have retained the services of a property management company(s). So you aren't fixing the blinds and toilets. Instead, you are getting checks via the property management company(s). And those checks are covering your costs, plus some.

So as JoeRetire said, you need to weigh: (1) the economics of those revenue-positive returns; versus (2) the transactional and tax costs of selling plus your anticipated returns from a 90/10 portfolio in a presumably after-tax account. Those questions can only be answered by you. The former depends on facts we don't know. And the latter depends on your view of the future returns from a 90/10 portfolio.

If I were you -- given market conditions and how RE is expected to perform in a rising interest rate environment -- I might just stay the course.

Of course, we don't know anything about the rest of your investments, your financial plans, and other matters.

YMMV.
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JoeRetire
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Re: Should I sell RE assets?

Post by JoeRetire »

stanthecaddy wrote: Sat Jan 22, 2022 1:47 pm
There's a reason you chose to keep the houses and become a landlord. Has that reason changed?
I’m convinced that the most effective investment for us is index funds, which wasn’t the case 5 years back.

The last rental was in 2020, and we did that to avoid a distress sale. The house went on market a week before thanksgiving and was rather soft. It has appreciated meaningfully since then.

The current setup with the property manager is great, we do virtually no work. And the status quo is comfortable, but I don’t want to make a big mistake. I’m also a little wary of having 4 houses I’m the same area, but it’s in a top 10 city.
(shrug) Your choice.

For me, I'd sell and invest the proceeds in index funds. But I would never have wanted to be a landlord in the first place.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

So as JoeRetire said, you need to weigh: (1) the economics of those revenue-positive returns; versus (2) the transactional and tax costs of selling plus your anticipated returns from a 90/10 portfolio in a presumably after-tax account. Those questions can only be answered by you. The former depends on facts we don't know. And the latter depends on your view of the future returns from a 90/10 portfolio.
Thank you, this makes sense. I’ll also add that another part of the reason that the RE assets have done well is the leverage we got by just having to put 20% down.
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Re: Should I sell RE assets?

Post by Minty »

stanthecaddy wrote: Sat Jan 22, 2022 2:21 pm
So as JoeRetire said, you need to weigh: (1) the economics of those revenue-positive returns; versus (2) the transactional and tax costs of selling plus your anticipated returns from a 90/10 portfolio in a presumably after-tax account. Those questions can only be answered by you. The former depends on facts we don't know. And the latter depends on your view of the future returns from a 90/10 portfolio.
Thank you, this makes sense. I’ll also add that another part of the reason that the RE assets have done well is the leverage we got by just having to put 20% down.
Your equity is at the top, and you own it all the way to the bottom. Real estate can only go up, like stock, right?

We would need more details, as others have said, but a key basic fact is the portion of your portfolio the RE represents. If it is a lot, you might conclude you are insufficiently diversified.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

We would need more details, as others have said, but a key basic fact is the portion of your portfolio the RE represents. If it is a lot, you might conclude you are insufficiently diversified.
The downpayments for the rental properties are about 10% of overall assets.
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Re: Should I sell RE assets?

Post by humpty »

Zeno wrote: Sat Jan 22, 2022 1:36 pm
59Gibson wrote: Sat Jan 22, 2022 1:22 pm Keep in mind in addition to commissions, closing costs, any work to prepare for sale you have 2 big ones lurking... Depreciation recapture and Cap gains tax. Have you considered a 1031X?
+1

This.

Have you looked into 1031 exchanges? We did that once -- long ago -- for a primary residence (Property #1) that we did not sell after moving to our next primary residence. We then rented out Property #1. When we sold Property #1 thereafter, we flipped the proceeds to another investment via a 1031 exchange.

1031 provides a way to keep kicking the tax can down the proverbial road.
I thought about doing this myself. Do you have to keep doing 1031s in order to push out taxes (until death, which is the point?). Or do people do that if they want to continually use accelerated depreciation?
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Re: Should I sell RE assets?

Post by Sandtrap »

It’s tough to give suggestions because without knowing your bigger financials and goals etc as you would in a forum “portfolio review in that format”, a lot of asssumptions have to be made.

You want to retire by age 50.

Given the above, sell and move all of your after tax proceeds into your index portfolio.

Because of that increased portfolio size you might want to reconsider such a volatile allocation.

3 properties are not too much to sell and reinvest. As you say, doing so at a market high is a very good thing.
It will also simplify and de stress your life financially and otherwise.

Now.
Let’s focus on your goal of retiring in 10 years at age 50 with a full portfolio review in forum format.
Consider this R/E matter just the first step.

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Re: Should I sell RE assets?

Post by chipperd »

stanthecaddy wrote: Sat Jan 22, 2022 4:53 pm
We would need more details, as others have said, but a key basic fact is the portion of your portfolio the RE represents. If it is a lot, you might conclude you are insufficiently diversified.
The downpayments for the rental properties are about 10% of overall assets.
Not to be harsh, but that wasn't the question as the down payment is not helpful information to approach an answer to your question.
To rephrase (and hopefully not lose the intent of the question):
What percentage of your overall portfolio does the value of all your investment real-estate represent?
I would be looking for the gross value number of what you could sell all rental properties for, as well as your net profit from sales of all rental properties (sales - mortgages, taxes, cost of fixes needed to sell, total commissions and any other costs wrapped up in the sales of these properties).

Absent that information, not sure how anyone could start to approach a valid answer to your question.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

What percentage of your overall portfolio does the value of all your investment real-estate represent?
I would be looking for the gross value number of what you could sell all rental properties for, as well as your net profit from sales of all rental properties (sales - mortgages, taxes, cost of fixes needed to sell, total commissions and any other costs wrapped up in the sales of these properties).
Fair question. Net of mortgage, the rental properties now account for about 30% of our overall assets. I do think the 10% original investment is also relevant, these investments have done well. Assuming a 10% transaction rate, we will net 20% of our assets from the proceeds. A big part of my hesitation in selling them is realizing the 10% transaction costs.
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Re: Should I sell RE assets?

Post by quietseas »

This is entirely your choice. This forum is not very friendly to people who own a business that rents out real estate. There is no requirement that a true Boglehead divest from or eschew rental real estate. Some people just don't want to bother with it. I happen to fall into that group myself, but for people who want to own rental real estate I think its a viable business to operate for decades including after you retire from a W-2 job. If you want to do so then I think it adds some diversification to your overall investment plan.
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Re: Should I sell RE assets?

Post by SouthernInvestor »

I would keep, fwiw.
Zeno
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Re: Should I sell RE assets?

Post by Zeno »

humpty wrote: Sat Jan 22, 2022 5:36 pm I thought about doing this myself. Do you have to keep doing 1031s in order to push out taxes (until death, which is the point?). Or do people do that if they want to continually use accelerated depreciation?
Last edited by Zeno on Sat Mar 19, 2022 9:19 pm, edited 1 time in total.
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Re: Should I sell RE assets?

Post by Basis »

stanthecaddy wrote: Sat Jan 22, 2022 1:19 pm the rents for all three of them are greater than mortgage+expenses, so they’re self sustaining. We bought the houses in 2010,2103 and 2016 p and they have appreciated nicely as you can imagine…
Split the difference.
Keep what you own.
Don’t buy any more.
You see what you know.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

Thanks everyone. I figured there wouldn't be a slam dunk answer here. I have some good parameters to consider.
Don’t buy any more.
Definitely not buying anymore 8-) My inclination is to sell two of them over the the next few years, but not necessarily rush into it. One of them will be a tear down in a few years, so can eliminate transactions costs there.
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Re: Should I sell RE assets?

Post by quietseas »

stanthecaddy wrote: Sun Jan 23, 2022 11:08 am Thanks everyone. I figured there wouldn't be a slam dunk answer here. I have some good parameters to consider.
Don’t buy any more.
Definitely not buying anymore 8-) My inclination is to sell two of them over the the next few years, but not necessarily rush into it. One of them will be a tear down in a few years, so can eliminate transactions costs there.
I think you might be over-focusing on transaction costs. Don't let transaction costs or tax costs drive you to make a decision you otherwise would not want to make. If you don't want to own these properties due to a personal preference or they no longer fit into your business plan for your rental real estate business sell them off.
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Re: Should I sell RE assets?

Post by abuss368 »

59Gibson wrote: Sat Jan 22, 2022 1:22 pm Keep in mind in addition to commissions, closing costs, any work to prepare for sale you have 2 big ones lurking... Depreciation recapture and Cap gains tax. Have you considered a 1031X?
Dont’ forget Depreciation recapture is limited to 25%

Best.
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Re: Should I sell RE assets?

Post by AnnetteLouisan »

A radio financial guru used to say, would you buy them today? If not, sell. I’m facing a similar issue down the road so I know it’s not that easy. A lot of symbolism and emotions connected with real estate.
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Re: Should I sell RE assets?

Post by abuss368 »

AnnetteLouisan wrote: Sun Jan 23, 2022 11:38 am A radio financial guru used to say, would you buy them today? If not, sell. I’m facing a similar issue down the road so I know it’s not that easy. A lot of symbolism and emotions connected with real estate.
That has often been said in the individual stock world as well. Should I sell is often a question. A simple answer is would you buy that today?

And Annette you have a real estate background correct?

Tony
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Re: Should I sell RE assets?

Post by AnnetteLouisan »

abuss368 wrote: Sun Jan 23, 2022 12:04 pm
AnnetteLouisan wrote: Sun Jan 23, 2022 11:38 am A radio financial guru used to say, would you buy them today? If not, sell. I’m facing a similar issue down the road so I know it’s not that easy. A lot of symbolism and emotions connected with real estate.
That has often been said in the individual stock world as well. Should I sell is often a question. A simple answer is would you buy that today?

And Annette you have a real estate background correct?

Tony
My parents are in residential RE in a very mom and pop way (literally 😅) so for better or worse, I lived it day to day growing up and it remains dinner table conversation. Ask me anything, lol: termites, zoning, copper wire?

I personally am not in it (just call me Employee - like Call Me Ishmael - get it?) but I may have to take over the family businesses (or at least sell) at some hopefully distant point. Although it can be a massive hassle, it’s good for people who cherish their independence and “easy” money. HAH! I had a distant relative who owned commercial RE and was murdered in a rent dispute. An uncle was in it and had headaches and cost overruns developing what is genteelly referred to as “unimproved real estate.” But his daughter has it made in the shade (she sold).

Tolstoy should have written a trilogy called: Tenant, Owner, Spawn. Every property can be its own drama. The Good Earth by Pearl Buck comes close. The Pawnbroker (1964) with Rod Steiger I think sums up the issues, although it’s controversial today. It’s a great industry with low barriers to entry, and it’s brutal for the same reason.

You can think you own properties but the tables can turn and you find out they own you.

(NB, it’s not my thing but my parents are very pleased with it as themselves. They think it’s been great for them.)
Last edited by AnnetteLouisan on Sun Jan 23, 2022 1:05 pm, edited 3 times in total.
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stanthecaddy
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Re: Should I sell RE assets?

Post by stanthecaddy »

That has often been said in the individual stock world as well. Should I sell is often a question. A simple answer is would you buy that today?
I would not buy it today at the current prices, but I'm very happy with how they have turned out so far. And while the future is not guaranteed, I'm expecting the performance to hold up relative to stocks*. I've also lucked out with our property manager. His fees are reasonable, and is extremely competent.

* (a) not speculating, note that I've held these properties for 6,8 and 12 years
* (b) Part of the over performance is the leverage from the mortgage
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Re: Should I sell RE assets?

Post by KyleAAA »

Bogleheads in general have an irrational aversion to real estate. There's no need for you to adopt that portion of the philosophy. Evaluate the properties objectively to see what makes sense, but don't sell just because bogleheads seem to think you should.
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Re: Should I sell RE assets?

Post by KyleAAA »

Bogleheads in general have an irrational aversion to real estate. There's no need for you to adopt that portion of the philosophy. Evaluate the properties objectively to see what makes sense, but don't sell just because bogleheads seem to think you should. One quirk here is that your most recent rental may qualify for the primary residence capital gains exclusion, which if of course is both very attractive and very time sensitive. The others it seems like you may own capital gains tax on. With how much they've appreciated, you're probably looking at a huge tax bill on those. Proceed accordingly.

Were I in your shoes AND I didn't want to own real estate going forward, I'd likely sell the home for which I had the capital gains exclusion but not the others unless I thought the area was going downhill fast.
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Re: Should I sell RE assets?

Post by abuss368 »

AnnetteLouisan wrote: Sun Jan 23, 2022 12:10 pm
abuss368 wrote: Sun Jan 23, 2022 12:04 pm
AnnetteLouisan wrote: Sun Jan 23, 2022 11:38 am A radio financial guru used to say, would you buy them today? If not, sell. I’m facing a similar issue down the road so I know it’s not that easy. A lot of symbolism and emotions connected with real estate.
That has often been said in the individual stock world as well. Should I sell is often a question. A simple answer is would you buy that today?

And Annette you have a real estate background correct?

Tony
My parents are in residential RE in a very mom and pop way (literally 😅) so for better or worse, I lived it day to day growing up and it remains dinner table conversation. Ask me anything, lol: termites, zoning, copper wire?

I personally am not in it (just call me Employee - like Call Me Ishmael - get it?) but I may have to take over the family businesses (or at least sell) at some hopefully distant point. Although it can be a massive hassle, it’s good for people who cherish their independence and “easy” money. HAH! I had a distant relative who owned commercial RE and was murdered in a rent dispute.

Tolstoy should have written a trilogy called: Tenant, Owner, Spawn. Every property can be its own drama. The Good Earth by Pearl Buck comes close. The Pawnbroker (1964) with Rod Steiger I think sums up the issues, although it’s controversial today. It’s a great industry with low barriers to entry, and it’s brutal for the same reason.

You can think you own properties but the tables can turn and you find out they own you.
Thanks for sharing Annette. That is why after much debating and thought we decided not to become landlords. We were planning to rent our prior home to get started. I prefer REITs and have been reading a lot on real estate crowdfunding like Fundrise. That is truly passive investing within real estate.

Tony
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Re: Should I sell RE assets?

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Re: Should I sell RE assets?

Post by stanthecaddy »

One quirk here is that your most recent rental may qualify for the primary residence capital gains exclusion, which if of course is both very attractive and very time sensitive.
Yup, this was the one that we would have sold if it weren't for the unfortunate timing on when it went into the market. And we did put it on the market, taking the one offer we got then would have been a bad idea. We have timed the lease to end in Spring 23, so we'll consider then.

More than anything else, it’s the rentals that enabled me to FIRE.
I suppose this is the other consideration. I can see this happening for us as well.
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Re: Should I sell RE assets?

Post by barberakb »

I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
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Re: Should I sell RE assets?

Post by chipperd »

barberakb wrote: Mon Jan 24, 2022 12:25 am I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
While in the ultra short run, rents may go up and costs will remain basically the same, in the short, mid and longer run inflation will hit everything, including items needed for repair, insurance and so on....
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Re: Should I sell RE assets?

Post by Wricha »

stanthecaddy wrote: Sat Jan 22, 2022 1:47 pm
There's a reason you chose to keep the houses and become a landlord. Has that reason changed?
I’m convinced that the most effective investment for us is index funds, which wasn’t the case 5 years back.

The last rental was in 2020, and we did that to avoid a distress sale. The house went on market a week before thanksgiving and was rather soft. It has appreciated meaningfully since then.

The current setup with the property manager is great, we do virtually no work. And the status quo is comfortable, but I don’t want to make a big mistake. I’m also a little wary of having 4 houses I’m the same area, but it’s in a top 10 city.
I think you have your answer. Your convinced it is index funds. Really don’t have enough information to give you an alternative. Top view the real estate gives you diversity that a 90/10 does not.
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Re: Should I sell RE assets?

Post by Elvizzle »

I’m in a similar situation. My rentals have appreciated nicely, but rents haven’t really gone up that much, so I am contemplating 1031x into higher cash flow areas. I, personally, would not sell and put the funds in an index funds. You would pay transaction fees, pay taxes on the gain, pay taxes on depreciation recapture, lose out on your cash flow, lose out on the tax benefits of depreciation.

Also, good decision in getting a property manager.
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Re: Should I sell RE assets?

Post by Valuethinker »

stanthecaddy wrote: Sat Jan 22, 2022 1:47 pm
There's a reason you chose to keep the houses and become a landlord. Has that reason changed?
I’m convinced that the most effective investment for us is index funds, which wasn’t the case 5 years back.

The last rental was in 2020, and we did that to avoid a distress sale. The house went on market a week before thanksgiving and was rather soft. It has appreciated meaningfully since then.

The current setup with the property manager is great, we do virtually no work. And the status quo is comfortable, but I don’t want to make a big mistake. I’m also a little wary of having 4 houses I’m the same area, but it’s in a top 10 city.
With a 90/10 portfolio, what will you do if the stock market drops 50%? (say: a major war, or a worse pandemic).

Housing prices definitely fluctuate, but usually by less than stocks. 2007-2010 was, of course, an exception. And the 2 are interlinked, somewhat.

The rental income on a property is usually pretty solid, unless you are in an urban area w declining population and economy (midwest, typically). However a city can go bad for any number of reasons -- Rochester NY had Kodak and Xerox, and one went broke and the other is not what it was.

The bottom line is you want a diversified portfolio. If rental properties are cashflow positive you are earning a return.

Don't make this decision on the basis of what stock markets have done in the recent past. A long run return of 5-7% pa, w 2% inflation, is a pretty good expectation. And that's before costs (fund management, taxes etc).
barberakb
Posts: 629
Joined: Fri Apr 21, 2017 11:14 pm

Re: Should I sell RE assets?

Post by barberakb »

chipperd wrote: Mon Jan 24, 2022 5:01 am
barberakb wrote: Mon Jan 24, 2022 12:25 am I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
While in the ultra short run, rents may go up and costs will remain basically the same, in the short, mid and longer run inflation will hit everything, including items needed for repair, insurance and so on....
It is location dependent, but I have multiple rentals in 3 different states. Some of them I have had for over 10 years. 1st one I bought in 2004. I had some during the 2008 crises. I have never ever had to lower rent... Yes it may happen but they go up alot more often then they go down. And if you have a mortgage inflation does not affect that much. The majority of your costs associated with the house are the mortgage. Taxes and insurance may change but they do not go up anywhere even close to rent costs. Again we are talking a SFH here, I'm not experienced with multifamily or apartments. Most of your monthly cost is associated with the principal / interest payment and that is hopefully fixed. All of my loans are fixed.
chipperd
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Joined: Sat Sep 24, 2011 5:58 am
Location: here and now

Re: Should I sell RE assets?

Post by chipperd »

barberakb wrote: Mon Jan 24, 2022 11:42 am
chipperd wrote: Mon Jan 24, 2022 5:01 am
barberakb wrote: Mon Jan 24, 2022 12:25 am I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
While in the ultra short run, rents may go up and costs will remain basically the same, in the short, mid and longer run inflation will hit everything, including items needed for repair, insurance and so on....
It is location dependent, but I have multiple rentals in 3 different states. Some of them I have had for over 10 years. 1st one I bought in 2004. I had some during the 2008 crises. I have never ever had to lower rent... Yes it may happen but they go up alot more often then they go down. And if you have a mortgage inflation does not affect that much. The majority of your costs associated with the house are the mortgage. Taxes and insurance may change but they do not go up anywhere even close to rent costs. Again we are talking a SFH here, I'm not experienced with multifamily or apartments. Most of your monthly cost is associated with the principal / interest payment and that is hopefully fixed. All of my loans are fixed.
Sounds like you've had a very low rate of repair and/or dealing with the increasing rates of supplies and labor of late.
Congrats on that!
I don't think the experiences you've had with the three rentals can be generalized across the board however, esp since your ownership experience has been in a low inflationary environment.
Yes, inflation can't touch a fixed mortgage obviously, but everything else associated with most rentals, your experience aside, does increase with inflation.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Topic Author
stanthecaddy
Posts: 40
Joined: Sun Jan 27, 2019 9:11 pm

Re: Should I sell RE assets?

Post by stanthecaddy »

With a 90/10 portfolio, what will you do if the stock market drops 50%? (say: a major war, or a worse pandemic).
This is perhaps topic for another thread, but a couple of folks have pointed out the risky AA- my approach has so far to have a higher than usual cash cushion (12-24 months) to compensate for the riskier AA. Not saying it’s a better approach, but this has allowed me to use the cash for capital expenses, have fu money when dealing with shitty employers, plenty of padding for childcare expenses, enjoy the occasional splurge, and also buy when the market is down.
SouthernFIRE
Posts: 129
Joined: Tue Jul 10, 2018 1:24 pm

Re: Should I sell RE assets?

Post by SouthernFIRE »

I would sell at least one now to take advantage of the hot sellers’ market. You are overestimating transaction costs. There are flat fee brokers that will list your property on MLS for $500. You can still get multiple offers if you price it right.
Topic Author
stanthecaddy
Posts: 40
Joined: Sun Jan 27, 2019 9:11 pm

Re: Should I sell RE assets?

Post by stanthecaddy »

I would sell at least one now to take advantage of the hot sellers’ market. You are overestimating transaction costs. There are flat fee brokers that will list your property on MLS for $500. You can still get multiple offers if you price it right.
I do want to sell one, maybe 2. I’m not so sure on the $500 mls listing. I know if can be done, but the system is very much biased towards realtors being the middlemen.
barberakb
Posts: 629
Joined: Fri Apr 21, 2017 11:14 pm

Re: Should I sell RE assets?

Post by barberakb »

chipperd wrote: Mon Jan 24, 2022 2:44 pm
barberakb wrote: Mon Jan 24, 2022 11:42 am
chipperd wrote: Mon Jan 24, 2022 5:01 am
barberakb wrote: Mon Jan 24, 2022 12:25 am I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
While in the ultra short run, rents may go up and costs will remain basically the same, in the short, mid and longer run inflation will hit everything, including items needed for repair, insurance and so on....
It is location dependent, but I have multiple rentals in 3 different states. Some of them I have had for over 10 years. 1st one I bought in 2004. I had some during the 2008 crises. I have never ever had to lower rent... Yes it may happen but they go up alot more often then they go down. And if you have a mortgage inflation does not affect that much. The majority of your costs associated with the house are the mortgage. Taxes and insurance may change but they do not go up anywhere even close to rent costs. Again we are talking a SFH here, I'm not experienced with multifamily or apartments. Most of your monthly cost is associated with the principal / interest payment and that is hopefully fixed. All of my loans are fixed.
Sounds like you've had a very low rate of repair and/or dealing with the increasing rates of supplies and labor of late.
Congrats on that!
I don't think the experiences you've had with the three rentals can be generalized across the board however, esp since your ownership experience has been in a low inflationary environment.
Yes, inflation can't touch a fixed mortgage obviously, but everything else associated with most rentals, your experience aside, does increase with inflation.
I have 10 SFHomes across 3 states. I can only explain what I have experienced. Soo many people like to downplay or say negative things about RE even though they have little or no experience with it. I like RE and have had issues with it but my positives have far exceeded my negatives so I like to share the good RE stories. But I would say my experience is not of small duration or sample size. What experience do you have with SFH rentals in a rising inflationary environment?
chipperd
Posts: 1674
Joined: Sat Sep 24, 2011 5:58 am
Location: here and now

Re: Should I sell RE assets?

Post by chipperd »

barberakb wrote: Mon Jan 24, 2022 11:03 pm
chipperd wrote: Mon Jan 24, 2022 2:44 pm
barberakb wrote: Mon Jan 24, 2022 11:42 am
chipperd wrote: Mon Jan 24, 2022 5:01 am
barberakb wrote: Mon Jan 24, 2022 12:25 am I would keep them. You haven't had them very long. And we are in a rising interest rate environment.
Its location dependent but as long as you have fixed rate loans the rent will go up while your costs basically remain the same.
Plus they are making $ right now and you have stated you do hardly any work.

Just think 20 yrs down the road when you are retired and the rent checks have all doubled but your costs have stayed the same. And
it gets even better once you pay them off. :sharebeer
While in the ultra short run, rents may go up and costs will remain basically the same, in the short, mid and longer run inflation will hit everything, including items needed for repair, insurance and so on....
It is location dependent, but I have multiple rentals in 3 different states. Some of them I have had for over 10 years. 1st one I bought in 2004. I had some during the 2008 crises. I have never ever had to lower rent... Yes it may happen but they go up alot more often then they go down. And if you have a mortgage inflation does not affect that much. The majority of your costs associated with the house are the mortgage. Taxes and insurance may change but they do not go up anywhere even close to rent costs. Again we are talking a SFH here, I'm not experienced with multifamily or apartments. Most of your monthly cost is associated with the principal / interest payment and that is hopefully fixed. All of my loans are fixed.
Sounds like you've had a very low rate of repair and/or dealing with the increasing rates of supplies and labor of late.
Congrats on that!
I don't think the experiences you've had with the three rentals can be generalized across the board however, esp since your ownership experience has been in a low inflationary environment.
Yes, inflation can't touch a fixed mortgage obviously, but everything else associated with most rentals, your experience aside, does increase with inflation.
I have 10 SFHomes across 3 states. I can only explain what I have experienced. Soo many people like to downplay or say negative things about RE even though they have little or no experience with it. I like RE and have had issues with it but my positives have far exceeded my negatives so I like to share the good RE stories. But I would say my experience is not of small duration or sample size. What experience do you have with SFH rentals in a rising inflationary environment?
None, but I would be there are very few who have as inflation has been rising at a very low rate for decades.
That's why I know and trust what has happened in the past when inflation took off, as I remember from the 70's in this country. Not saying that will happen now, but it is wise to know the past.
You sound younger than one who might remember those times.
Know that history doesn't repeat but it rhymes, and some current day stories are starting to have that familiar sound.
Each to his/her own.
Best of luck
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
Streptococcus
Posts: 425
Joined: Wed Jan 02, 2013 11:17 pm

Re: Should I sell RE assets?

Post by Streptococcus »

stanthecaddy wrote: Sat Jan 22, 2022 1:19 pm Over the course of the last 10 years, we ended up with 3 rental properties other than our primary home. Two of the rentals were our prior primary, but we ended up outgrowing them.

We didn’t sell them to not incur the high transaction fees and we didn’t need the down payment unlocked, and despite using a property manager (no time/ interest to DIY) the rents for all three of them are greater than mortgage+expenses, so they’re self sustaining. We bought the houses in 2010,2103 and 2016 p and they have appreciated nicely as you can imagine.

Now, I’m a newish boglehead and have unwound all of my other active investments into a 90/10 AA. my question is that if i should keep the RE investments (for 10+ years) or sell them and incur the 6-8% transaction fees and invest the proceeds in the 90/10 AA.

We are in our early 40's and don't have any planned major cash needs. Ideally we retire by 50.
I was in similar shoes a couple years ago and sold, mostly because I was moving and I could not find a good enough property manager in that town. But my advice to you is to hold on to them. Index fund is great because it’s as passive as any investment you’ll ever venture into. But RE is a great diversification for someone investing in the stock market. And if you are able to cash flow monthly, you have a great system with your PM and do no work on your properties, you should stick to it. I personally stick to those properties indefinitely. Remember that the longer you keep your rental property, the higher the return on investment. The diversification of RE can also allow you to take more risks on stocks.

I personally like RE because you can make money 4 ways: 1. The tenant pays your mortgage. 2. You cash flow monthly. 3. The property appreciates. 4. If you keep the property, you can minimize your taxes. If you can hit all 4 ways without any work on your part, you are a winner.
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