Should I sell my rental properties?

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Topic Author
Tayskiing
Posts: 48
Joined: Tue Oct 06, 2015 7:47 pm

Should I sell my rental properties?

Post by Tayskiing » Sat Oct 06, 2018 8:20 am

Hello Bogleheads!
I am seeking advice on whether to sell my rental properties or keep them. I have two:
TX House
- Owe $175k (zillow est $208k) Bought house in 2015
- $1350 Mortgage (pay extra for $1550 monthly payment)
- $1250 ($1400 charge to renters) - Rental Income
OKC House
- Owe $89k (zillow est $175) Bought 2004
- $1041 Mortgage
- $1122 Rental Income

TX house has been a pain with a crummy property manager. OKC house has a great property manager. Both have been consistently rented out since they became rental property. I am looking to retire in about 2.5 yrs and will be buying our retirement home hopefully in cash. So, would it be better to sell now and put the rental property gains in a savings account or wait until closer to retirement and buying our retirement home? TX rental property has been a headache but the OKC home is painless because of the good property manager.

Second question would be what would be the property gains tax on the properties? Am I correct in thinking that I would only have to pay on the gains on the property- what I sell the property – what I bought it for – selling costs? I have not lived in either property 2 of the last 5 (10 for military) years so I would get hit with the property gains tax if there are any. I am hoping that the property gains tax isn’t how much I actually make on the property including what I put into the house? So, for TX house $210k (sell) - $195k (original purchase price) - $16k (closing costs) = -1k (so, I shouldn’t owe any gains tax?) or would it be $210k (sell) - $175k (what I still owe) - $16k (closing costs) = 19k (so, I would have to pay 15-20% on this amount for property gains tax?)

Thank you for any comments and feedback you may have.

z3r0c00l
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Re: Should I sell my rental properties?

Post by z3r0c00l » Sat Oct 06, 2018 8:38 am

I don't think the income in these two markets seems worth the cost of keeping the properties. I don't see insurance and other expenses, and already you are just breaking even against mortgage, I presume before taxes. It just doesn't strike me as a useful source of income if the homes more or less only pay for themselves.

ClassySDLivin
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Joined: Sat Jan 28, 2017 8:25 pm

Re: Should I sell my rental properties?

Post by ClassySDLivin » Sat Oct 06, 2018 10:01 am

You appear to be missing depreciation capture when considering the reportable amounts if the properties were sold. I have seen a few good posts on this subject and the calculation on BH - I recommend starting with the Wiki and searching the site. As a previous poster pointed out, it looks like you are at a net loss when factoring in real estate taxes, capital expenditures, etc. I am not familiar with the real estate markets in those areas (TX has some hotter markets and some that appear to never move), however you should calculate your return on investment considering the actual out of pocket - perhaps you will find that you can find better (e.g. higher ROI, less work) investments. Good luck.

euroswiss
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Re: Should I sell my rental properties?

Post by euroswiss » Sat Oct 06, 2018 12:58 pm

If your numbers are accurate then you are bleeding serious cash on both of these properties. As a rule of thumb, 50% of your collected rents will go to expenses (property manager, taxes, insurance, maintenance, vacancies, CapEx, etc). The other 50% are debt service and your profit. If I understand your numbers, your debt servicing accounts for most of the the collected rent (certainly more than 50%), so you loose money every day. Unless you can change this (increase rent, decrease expenses), you need to sell these properties as quickly as possible.

I strongly recommend you join the (free) real estate forum www.biggerpockets.com and post your situation there. You will get far more detailed responses from a generally very expert audience.

And yes, your Cap gain will be sale proceeds, minus closing costs, acquisition cost, minus improvements (real improvements, not maintenance items). So, for your TX property you will show a loss. However, as another poster pointed out, you will need to re-capture depreciation (whether you claimed it or not, you still have to recapture it - I hope you have been claiming it!).
Last edited by euroswiss on Sat Oct 06, 2018 1:02 pm, edited 1 time in total.

denovo
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Re: Should I sell my rental properties?

Post by denovo » Sat Oct 06, 2018 1:01 pm

I think you should sell because I think it's a mistake to own rentals if you are doing things remotely with property managers.

Also, because I don't think you have the requisite background. For example, your calculation on selling is wrong. You have to deduct the depreciation you took from the cost basis. Even if you didn't take the depreciation, IRS doesn't care. Still need to account it at sale.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Topic Author
Tayskiing
Posts: 48
Joined: Tue Oct 06, 2015 7:47 pm

Re: Should I sell my rental properties?

Post by Tayskiing » Sat Oct 06, 2018 1:14 pm

Thanks for all the inputs. I think I will sell my property closer to when my renters lease expires. I don't think I've depreciated either houses... What's the % I should be depreciating per year?

denovo
Posts: 4423
Joined: Sun Oct 13, 2013 1:04 pm

Re: Should I sell my rental properties?

Post by denovo » Sat Oct 06, 2018 1:31 pm

Tayskiing wrote:
Sat Oct 06, 2018 1:14 pm
Thanks for all the inputs. I think I will sell my property closer to when my renters lease expires. I don't think I've depreciated either houses... What's the % I should be depreciating per year?
Please consult with a CPA or other tax professional. How have you been doing your taxes for the rentals, all the basic tax software companies make sure you do depreciation. Check your Schedule E, line 18.

You'll need to amend your prior returns if you haven't done it.
"Don't trust everything you read on the Internet"- Abraham Lincoln

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