Sell or rent $2m house?

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michaeljmroger
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Sell or rent $2m house?

Post by michaeljmroger » Fri May 29, 2020 5:56 pm

Bogleheads,

We'll be permanently leaving the US soon, and I'm not entirely sure if I should sell or keep and rent our house. The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.

I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!

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David Jay
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Re: Sell or rent $2m house?

Post by David Jay » Fri May 29, 2020 6:00 pm

I am uncomfortable with being a absent landlord. I would sell if I am not living nearby.
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sergeant
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Re: Sell or rent $2m house?

Post by sergeant » Fri May 29, 2020 6:00 pm

Sell! No-brainer for me.
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Leemiller
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Re: Sell or rent $2m house?

Post by Leemiller » Fri May 29, 2020 6:01 pm

Sell. I just read somewhere that people renting beach homes in the Hamptons are refusing to vacate given that evictions are halted. Further, if you really wanted to diversity with rental property I can’t imagine you would have bought your home for that purpose. If not, you should sell.

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Ben Mathew
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Re: Sell or rent $2m house?

Post by Ben Mathew » Fri May 29, 2020 6:01 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.
Sell the house. If you want more exposure to real estate, buy a real estate ETF like VGSLX. Less hassle. Less work. More diversified.

boogiehead
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Re: Sell or rent $2m house?

Post by boogiehead » Fri May 29, 2020 6:02 pm

Seems like a no-brainer to sell.... if your only getting 5k worth of rent for a 2 mil property, seems to me like your subsidizing someone to live there.

Krui24
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Re: Sell or rent $2m house?

Post by Krui24 » Fri May 29, 2020 6:04 pm

I would definitely sell.

At $5k / month for a $2MM house, that's 3% gross yield, and then you have to deduct taxes, upkeep, and vacancy. So basically you're betting on appreciation in the price, which isn't a given.

I have personal experience with this BTW - I was living overseas and renting out a house. It was OK until a tree fell on the house - believe me, that was a pain to manage from afar.

Simplify your life and take the cash. If you want exposure to real estate + some yield, buy some REITs...

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White Coat Investor
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Re: Sell or rent $2m house?

Post by White Coat Investor » Fri May 29, 2020 6:09 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
Bogleheads,

We'll be permanently leaving the US soon, and I'm not entirely sure if I should sell or keep and rent our house. The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.

I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!
Absentee landlord on a Cap Rate 1.7 property in a state with notoriously unfriendly landlord laws? No thanks. That's just a big bet on appreciation. Maybe it pays off, maybe it doesn't, but I'd put the money elsewhere.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

milktoast
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Re: Sell or rent $2m house?

Post by milktoast » Fri May 29, 2020 6:09 pm

I was looking at a similar decision in Seattle area.

What I found was that rents tend to be based more on bed/bath. Buying assigns more value to lot size/quality/view/etc. So our high end home wasn't worth keeping as a rental. If I wanted a rental, I would have been better off selling and buying same bed/bath in a cheaper neighborhood nearby - a 2x increase in price resulted in only about 20% higher rents between the two neighborhoods.

But depending on where you are in CA, maybe that's a mid market house.

retired@50
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Re: Sell or rent $2m house?

Post by retired@50 » Fri May 29, 2020 6:10 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
Bogleheads,

We'll be permanently leaving the US soon, and I'm not entirely sure if I should sell or keep and rent our house. The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.

I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!
The $200 monthly fee you mention sounds low for a professional property manager. Typically the fee is 5% - 7% of the monthly rent. I'm one of the few in the forum who sees the value of rental real estate, with a couple of caveats.

Interview several property managers, check references, etc. Use a true professional, not just a handyman. This will be the most important decision you make related to this property. If the house has any weaknesses, find out before renting it out. Fix them first. Then, when things do go wrong or break or need repair, use qualified personnel to fix things.

The upside of a rental income is that it's not dependent on the stock market. What matters is that your property manager can market the property well, then find, screen, and collect rent from someone who can hold down a job that allows them to make consistent rent payments. Treat your tenant fairly and they may stick around for a long time, which helps you since your house won't be sitting vacant.

Regards,
This is one person's opinion. Nothing more.

IHateCasinos
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Re: Sell or rent $2m house?

Post by IHateCasinos » Fri May 29, 2020 6:18 pm

Market timing in the property market IS probably the right thing to do here. If someone offers you your asking price now, take it! if not, dont sell *right now*, rent it out for a 2 or 3 years , hoping for some gain back to Jan 2020.
If the *almost right offer comes in now, sell. get it gone.
One great piece of advice i can give you - DON'T buy for a ~year on the other side. Rent. Yes, its obvious, but I certainly did not follow it, even though i knew it. House buying is too emotional for OH to do slowly. she always wants stuff "finished". sigh.

Minor but... Forex rate changes? - will the US$ fall 10% in a year? against the CHF, no, only if the Swiss allow it to. every other country cannot just decide to let their currency rise (ie US$ fall) though.

Im glad you already know about transferwise though. Great product!
M
Last edited by IHateCasinos on Fri May 29, 2020 7:19 pm, edited 1 time in total.

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Sandtrap
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Re: Sell or rent $2m house?

Post by Sandtrap » Fri May 29, 2020 7:04 pm

Clearly.
Sell.

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Misenplace
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Re: Sell or rent $2m house?

Post by Misenplace » Fri May 29, 2020 7:21 pm

Sandtrap wrote:
Fri May 29, 2020 7:04 pm
Clearly.
Sell.

j🌺
And, that advice is coming from one of our more experienced real estate investors on the forum.

Trader Joe
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Re: Sell or rent $2m house?

Post by Trader Joe » Fri May 29, 2020 7:33 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
Bogleheads,

We'll be permanently leaving the US soon, and I'm not entirely sure if I should sell or keep and rent our house. The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.

I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!
Sell the house.

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geerhardusvos
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Re: Sell or rent $2m house?

Post by geerhardusvos » Fri May 29, 2020 7:44 pm

+1

Sell.
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bltn
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Re: Sell or rent $2m house?

Post by bltn » Fri May 29, 2020 7:54 pm

Sell while you can get the 250-500 k capital gains deduction for a personal residence.

gtd98765
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Re: Sell or rent $2m house?

Post by gtd98765 » Fri May 29, 2020 8:21 pm

If I were renting a $2M house I would expect everything to work perfectly all the time, and would annoy the landlord/property manager every time something small went wrong and demand that it be fixed.

SELL!

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unclescrooge
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Re: Sell or rent $2m house?

Post by unclescrooge » Fri May 29, 2020 8:25 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
Bogleheads,

We'll be permanently leaving the US soon, and I'm not entirely sure if I should sell or keep and rent our house. The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.

I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!
The rent and the property management fee both seem low.

How confident are in all these numbers?

What's your purchase price?

Would you ever come back to the area, and if so would you consider living in the same house?

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ram
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Re: Sell or rent $2m house?

Post by ram » Fri May 29, 2020 8:34 pm

Sell.
Ram

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Sandtrap
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Re: Sell or rent $2m house?

Post by Sandtrap » Fri May 29, 2020 8:34 pm

You will have all the advantages of diversification of your portfolio through R/E income property ownership if the property is in your new location. That's not hard to do and keeps things simple, and gives you more options going forward.
And, once selling the property, you have the options of buying and renting, for example, 4 properties valued at $500k each with greater return percentages, higher ROI, and greater tax advantages. Look at the possibilities.

Compared to this forward looking proactive strategy, retaining the older property is like a "boat anchor", while there might be a few financial advantages, the overall strategy seems a large compromise. Why?
Perhaps you have emotional reasons or some attachment to the older property, or perhaps there's the distant possibility of returning to it, or at least not parting with it. If so, then it's not just a business and financial decision.
Sometimes it's hard to part with things we own whether a business, property, etc, and it's more convenient to justify retaining things even with non optimal returns. It's not uncommon and I've worked with quite a few business and R/E owners who get stuck.

Some things to think about.
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Re: Sell or rent $2m house?

Post by Jack FFR1846 » Fri May 29, 2020 8:40 pm

$200 for a $2M house? I expect at the first problem, they'll "fire" you and you'll be left trying to find a manager from over seas. My manager, back in the late 80's cost me 10%. $100 a month on a $1000 rent on a $125k house. When he got a new renter and told them that the lawn mower came with the house (it belonged to the first renter, who took it) and the renters hired someone and deducted this from the rent, I asked the manager about it. He went ballistic and "fired" me. Fortunately, the renters then left without notice and we left it empty till we came back to it.

That's a pretty mild happening for a rental. Prepare for much worse.

Sell
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random_walker_77
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Re: Sell or rent $2m house?

Post by random_walker_77 » Fri May 29, 2020 8:48 pm

If your numbers are correct, you expect to take in $60K, pay $3K in mgmt, and owe property taxes ($20K?). You'll also be taking depreciation on this, and be subject to all the risks of landlording including property damage and potential hassles from bad tenants.

If you were planning to move back, Prop 13's freeze on property taxes sounds like maybe the only upside to keeping the place. How much do you owe on property taxes today? Is this a 100K house on 1.9M of land, or is this a $1.5M house on 0.5M of land? Earthquakes (and tenants) can damage houses, but the land ought to be fine.

Given that you ought to be able to expect a 5% return on $2M (i.e. an easy 100K) with a balanced fund invested in the stock/bond markets, keeping the house doesn't look like a good move. I could only see keeping it if the value is primarily in land (mitigating your risk), you're an optimist about the potential for future price appreciation relative to stocks, and you want to preserve the option of moving back someday.

averagelonghorn
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Re: Sell or rent $2m house?

Post by averagelonghorn » Fri May 29, 2020 8:55 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
I have a large portfolio, no debts, and I don't need to sell the house to buy another one. I'm tempted to sell it mostly because I don't want to keep filing taxes in the US after I'm gone, worrying about a massive earthquake, and generally having to deal with all the small but annoying issues most landlords experience.

On the other hand, it might be an interesting long-term investment and a good way to diversify my portfolio which is mostly concentrated in stocks and bonds right now.

What would you recommend me to do?

Thank you for your help!
Sure, it might be an "interesting long-term investment," but Interesting does NOT equal profitable!

Short Version: Sell.... Sell Now!
Longer Version:

Only reason I'd consider renting out house you describe would be if my relocation was temporary and I would likely be returning within 3 years and really wanted to move back into that house then. It sure sounds like this does NOT describe your situation at all.

What's your cost basis? If you sell now, never having rented, you're likely to pay 0 cap gains taxes, assuming your gain isn't over 250k/500k (depending on marital status.) If you convert to a rental, that starts to go away, and goes away completely after 5 years. (And even if you're above that cap, cap gains will be lower selling now.)

You are being super optimistic on property management fees. If they are that cheap, I would question their competence.

If this would cause you to have to file US tax returns when you wouldn't otherwise have to, that is complexity that just doesn't seem worth it for the returns.

I believe RE investments can be a great idea for many for lots of reasons. Even "accidental landlord" situations can turn out good. I think plenty of posters here are TOO down on being a landlord, it suits plenty of people; but in your scenario SELL! Sell NOW! If you want to be a landlord, explore opportunities in the country you're moving to. Or, do the Boglehead thing and take your profits, and invest according to your AA.

2020 ButClassic
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Re: Sell or rent $2m house?

Post by 2020 ButClassic » Fri May 29, 2020 9:09 pm

At least in the bay area you should expect that amount of rent for a 1.5M property.

It's probably a good idea to sell unless you seriously consider returning to the area.

Watching over a property while away, especially from outside the country, is not pleasant.

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michaeljmroger
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Re: Sell or rent $2m house?

Post by michaeljmroger » Fri May 29, 2020 9:35 pm

As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.

I'm a little bit surprised by the overwhelming majority of "sells". Yes, I’m fundamentally a Boglehead too, but I guess I can see the value/possibility in substantial property appreciation. Covid makes any forecasts a lot more difficult, but historically this area hasn't been disappointing in terms of real estate investments. There's obviously no guarantee it'll continue like this, but that's just as true with stock market returns.

Either way, I'm grateful for all your responses!

averagelonghorn
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Re: Sell or rent $2m house?

Post by averagelonghorn » Fri May 29, 2020 9:55 pm

michaeljmroger wrote:
Fri May 29, 2020 9:35 pm
As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.
I mentioned one of the only reasons I would consider renting it out was if you were planning on moving back soon.

BUT: Being emotionally attached to a house you are renting out is even more the reason to sell..... emotional attachment can (will?) lead to bad business decisions.

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cchrissyy
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Re: Sell or rent $2m house?

Post by cchrissyy » Fri May 29, 2020 10:25 pm

if you want to be a landlord and make money on appreciation, i would think you could sell this house and find 2 or 3 cheaper houses that are more suitable to be rentals. Whatever qualities this one has, you picked to live in not as an investment.
And you could find a more optimal city for that appreciation.
Actually, you could diversify into multiple cities to be safer, in terms of your bet on appreciation as well as risk or earthquakes and fire. If this is really what you wanted to do.

but I vote Sell, not manage a real estate business from abroad.

Bobby206
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Re: Sell or rent $2m house?

Post by Bobby206 » Fri May 29, 2020 10:35 pm

I would sell that in a flat second. No doubt.

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geerhardusvos
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Re: Sell or rent $2m house?

Post by geerhardusvos » Fri May 29, 2020 11:09 pm

michaeljmroger wrote:
Fri May 29, 2020 9:35 pm
As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.

I'm a little bit surprised by the overwhelming majority of "sells". Yes, I’m fundamentally a Boglehead too, but I guess I can see the value/possibility in substantial property appreciation. Covid makes any forecasts a lot more difficult, but historically this area hasn't been disappointing in terms of real estate investments. There's obviously no guarantee it'll continue like this, but that's just as true with stock market returns.

Either way, I'm grateful for all your responses!
What I find with these questions: people often have a strong stance coming into something that they don’t disclose in the OP. And then they get surprised when BHs respond and use math and common sense. Read the white coat investor’s comment above. Sums it up perfectly. If you want the house, then why are you asking our opinion?

Sell it. You don’t think you can come back to California and rent a house someday? West Coast appreciation has been good lately, but it’s also historically a volatile market and not utility. It’s a luxury market. Rent (don’t own) luxury. Buy (don’t rent) utility. If you want to get sentimental about 2 million bucks, then go for it! If you’re sentimental about the house, why would you want renters in it?
VTSAX and chill

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Watty
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Re: Sell or rent $2m house?

Post by Watty » Sat May 30, 2020 12:17 am

If you are not a US citizen then something to look into is if you would be subject to nonresident alien estate taxes if you die while you own it. That only has a $60K exemption and crazy high tax rates. If you would be subject to that then selling it is an easy choice.

One other thing that I have not see is that you might qualify for the homeowners capital gain exemption and you will lose that if you rent it for more than a few years.

One way to look at this is to ask the question, "If you had the cash in the bank would you buy the house today to rent it?" There are taxes and transaction costs to consider but that is really just about the same question.

One other thing to consider is that if you rent it then change your mind and decide to sell it that will be a lot harder to do than selling it now. You would need to wait until the current renters lease is up, refurbish the place to get it ready to sell, find a real estate agent, and handle the negotiations while living overseas. If you keep it for the long term then whoever inherits it will have to deal with selling it. If they are not accustom to US laws and procedures that could be very difficult for them.

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Re: Sell or rent $2m house?

Post by phxjcc » Sat May 30, 2020 12:35 am

The unknown is your taxable basis in the house. If this was Mom’s house on the coast in Carmel that you inherited and taxes are $1,000 per year, then by all means keep it. If your basis is close to $2 mil, sell it. Any basis less than $1.5 needs to be discussed with a tax guy, not an Internet forum.

Good luck.

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Re: Sell or rent $2m house?

Post by 2tall4economy » Sat May 30, 2020 12:38 am

As someone who has been a landlord for decades, sell. First time landlording absentee with permanent relocation and at that rate or return, no way.

Sell and buy a reit mutual fund.

Separately you can escape us tax by leaving. You have to renounce your citizenship and pay a huge fee based on the value of your assets. They’ll always get you.
You can do anything you want in life. The rub is that there are consequences.

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Sandtrap
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Re: Sell or rent $2m house?

Post by Sandtrap » Sat May 30, 2020 8:26 am

michaeljmroger wrote:
Fri May 29, 2020 9:35 pm
As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.

I'm a little bit surprised by the overwhelming majority of "sells". Yes, I’m fundamentally a Boglehead too, but I guess I can see the value/possibility in substantial property appreciation. Covid makes any forecasts a lot more difficult, but historically this area hasn't been disappointing in terms of real estate investments. There's obviously no guarantee it'll continue like this, but that's just as true with stock market returns.

Either way, I'm grateful for all your responses!
If this is a strong consideration and you have the financial means to keep the home regardless of rental returns and expenses, then keep it, at least for now. You can always sell it at a later date.

Some decisions cannot be computed on a spreadsheet. Sometimes, these threads/posts help an OP to think things through and prioritize things.

j :happy
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random_walker_77
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Re: Sell or rent $2m house?

Post by random_walker_77 » Sat May 30, 2020 9:31 pm

michaeljmroger wrote:
Fri May 29, 2020 9:35 pm
As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.
Just a word of caution -- if you're emotionally attached to the actual house, and not just the location, beware that tenants can be really hard on a house. As in, when you move back, you might plan on a major remodel. After years of renting, the flooring probably needs replacement, and it wouldn't be surprising to have had big holes patched in the drywall and/or doors.

If I had a house I really cared about, I wouldn't want to rent it out. Now, for a 2M home, maybe your tenants are all very responsible, but there are places in california where 2M is a mundane house, and it's not uncommon for several young professionals (or even college students) to split the rent. So severe damage is not a foregone conclusion.

What's your basis in this house (i.e. capital gains) and what's your tax basis?

I'd strongly recommend reading denovo's post on becoming a landlord: viewtopic.php?t=226980
Then, take a day to think about it, and read it a second time. It's that good.

anoop
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Re: Sell or rent $2m house?

Post by anoop » Sat May 30, 2020 9:40 pm

I would sell.

Your post seemed to suggest you think you won’t have to file taxes if you don’t keep the house. If you’re a US citizen you have to keep filing federal taxes even if you leave the US.

neverpanic
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Re: Sell or rent $2m house?

Post by neverpanic » Sat May 30, 2020 10:34 pm

If you're a Prop 13 golden ticket holder, that's great. Hang onto it however you can.

But if you're not, I can't see giving up the capital gains exemption. If you do love the home, though, and you know in your heart of hearts you will return someday, either rent it for a much higher amount (9-10k) or hire someone to manage your new AirBnB property.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.

harrychan
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Re: Sell or rent $2m house?

Post by harrychan » Sat May 30, 2020 10:38 pm

FYI, I'm pretty sure not owning a home doesn't exempt you from filing taxes if you have legal status in the US.
This is not legal or certified financial advice but you know that already.

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HomerJ
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Re: Sell or rent $2m house?

Post by HomerJ » Sat May 30, 2020 10:40 pm

michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.
Um.... $60,000 a year on a $2 million asset is 3%... Oh wait, you have to pay $2400 a year for someone to manage it, plus property taxes, and insurance, plus the chance of having months with no renter.

I'm guessing you'll be making 1.5%-2% a year on this "investment".

How are you unable to do this math?

Are you just hoping for price appreciation? Is your plan to break even and hope the house is worth $3 million in a few years?
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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HomerJ
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Re: Sell or rent $2m house?

Post by HomerJ » Sat May 30, 2020 10:43 pm

phxjcc wrote:
Sat May 30, 2020 12:35 am
The unknown is your taxable basis in the house. If this was Mom’s house on the coast in Carmel that you inherited and taxes are $1,000 per year, then by all means keep it. If your basis is close to $2 mil, sell it. Any basis less than $1.5 needs to be discussed with a tax guy, not an Internet forum.

Good luck.
This.

It's not a great deal even if property taxes are low... If property taxes are high, you are crazy to hold on to it.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

anoop
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Re: Sell or rent $2m house?

Post by anoop » Sat May 30, 2020 10:46 pm

HomerJ wrote:
Sat May 30, 2020 10:40 pm
michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.
Um.... $60,000 a year on a $2 million asset is 3%... Oh wait, you have to pay $2400 a year for someone to manage it, plus property taxes, and insurance, plus the chance of having months with no renter.

I'm guessing you'll be making 1.5%-2% a year on this "investment".

How are you unable to do this math?

Are you just hoping for price appreciation? Is your plan to break even and hope the house is worth $3 million in a few years?
If the area stays “hot” (which remains to be seen because of work from home and the general economy), then over time the rent will go up. I know from people renting in the South Bay rents have been going up 5-10% annually.

anoop
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Re: Sell or rent $2m house?

Post by anoop » Sat May 30, 2020 10:51 pm

michaeljmroger wrote:
Fri May 29, 2020 9:35 pm
As a few of you mentioned, preserving the option to move back is definitely something we care about -- we're emotionally attached to this house, and we love California.

I'm a little bit surprised by the overwhelming majority of "sells". Yes, I’m fundamentally a Boglehead too, but I guess I can see the value/possibility in substantial property appreciation. Covid makes any forecasts a lot more difficult, but historically this area hasn't been disappointing in terms of real estate investments. There's obviously no guarantee it'll continue like this, but that's just as true with stock market returns.

Either way, I'm grateful for all your responses!
You have to ask in one of the landlords forums if you want to see a lot of “you’d be foolish to sell” responses!

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HomerJ
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Re: Sell or rent $2m house?

Post by HomerJ » Sat May 30, 2020 11:35 pm

anoop wrote:
Sat May 30, 2020 10:46 pm
HomerJ wrote:
Sat May 30, 2020 10:40 pm
michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.
Um.... $60,000 a year on a $2 million asset is 3%... Oh wait, you have to pay $2400 a year for someone to manage it, plus property taxes, and insurance, plus the chance of having months with no renter.

I'm guessing you'll be making 1.5%-2% a year on this "investment".

How are you unable to do this math?

Are you just hoping for price appreciation? Is your plan to break even and hope the house is worth $3 million in a few years?
If the area stays “hot” (which remains to be seen because of work from home and the general economy), then over time the rent will go up. I know from people renting in the South Bay rents have been going up 5-10% annually.
So hope the area stays hot.... Got it. Sounds more like gambling than an investment, but the OP sounds pretty rich, so I guess he can roll the dice.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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unclescrooge
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Re: Sell or rent $2m house?

Post by unclescrooge » Sat May 30, 2020 11:43 pm

HomerJ wrote:
Sat May 30, 2020 10:40 pm
michaeljmroger wrote:
Fri May 29, 2020 5:56 pm
The house is in CA, it's estimated at $2,000,000 and we could probably rent it around $5,000 / month. If we rent it, we'd pay someone (approximately $200 / month) to manage it.
Um.... $60,000 a year on a $2 million asset is 3%... Oh wait, you have to pay $2400 a year for someone to manage it, plus property taxes, and insurance, plus the chance of having months with no renter.

I'm guessing you'll be making 1.5%-2% a year on this "investment".

How are you unable to do this math?

Are you just hoping for price appreciation? Is your plan to break even and hope the house is worth $3 million in a few years?
I'm betting but the tent and they property management costs are underestimated.

Homes worth $1.2 million rent for $5,000 in SoCal.

anoop
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Re: Sell or rent $2m house?

Post by anoop » Sat May 30, 2020 11:45 pm

HomerJ wrote:
Sat May 30, 2020 11:35 pm
So hope the area stays hot.... Got it. Sounds more like gambling than an investment, but the OP sounds pretty rich, so I guess he can roll the dice.
With GDP forecast at -50%, small businesses closing at a record pace, and many bankruptcies, one might argue that investing in stocks is also a gamble. With NIRP around the corner, investing in fixed income is also a gamble. Everything is a gamble. It's all being backstopped by the fed (no fundamentals) and it all appears to be working. Will it continue to work? We don't know.

I don't like the idea of being a landlord, but I have 3 close friends who swear by real-estate and have been building up a portfolio to generate income in retirement.

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Re: Sell or rent $2m house?

Post by geerhardusvos » Sat May 30, 2020 11:57 pm

anoop wrote:
Sat May 30, 2020 11:45 pm
HomerJ wrote:
Sat May 30, 2020 11:35 pm
So hope the area stays hot.... Got it. Sounds more like gambling than an investment, but the OP sounds pretty rich, so I guess he can roll the dice.
With GDP forecast at -50%, small businesses closing at a record pace, and many bankruptcies, one might argue that investing in stocks is also a gamble. With NIRP around the corner, investing in fixed income is also a gamble. Everything is a gamble. It's all being backstopped by the fed (no fundamentals) and it all appears to be working. Will it continue to work? We don't know.

I don't like the idea of being a landlord, but I have 3 close friends who swear by real-estate and have been building up a portfolio to generate income in retirement.
Real estate is very typically not a $2 million house in SoCal. Most houses in our country go for $300k-400k. The one percent rule says that you should be able to rent out the property for 1% of its value per month. That’s $20,000 in this case. So even renting for $10,000/month isn’t getting you the return most savvy real estate investors are interested in. And we are talking about less than $5000 per month after property management, high maintenance, etc.

Totally garbage cash flow of a property...
VTSAX and chill

anoop
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Re: Sell or rent $2m house?

Post by anoop » Sun May 31, 2020 12:05 am

geerhardusvos wrote:
Sat May 30, 2020 11:57 pm
anoop wrote:
Sat May 30, 2020 11:45 pm
HomerJ wrote:
Sat May 30, 2020 11:35 pm
So hope the area stays hot.... Got it. Sounds more like gambling than an investment, but the OP sounds pretty rich, so I guess he can roll the dice.
With GDP forecast at -50%, small businesses closing at a record pace, and many bankruptcies, one might argue that investing in stocks is also a gamble. With NIRP around the corner, investing in fixed income is also a gamble. Everything is a gamble. It's all being backstopped by the fed (no fundamentals) and it all appears to be working. Will it continue to work? We don't know.

I don't like the idea of being a landlord, but I have 3 close friends who swear by real-estate and have been building up a portfolio to generate income in retirement.
Real estate is very typically not a $2 million house in SoCal. Most houses in our country go for $300k-400k. The one percent rule says that you should be able to rent out the property for 1% of its value per month. That’s $20,000 in this case. So even renting for $10,000/month isn’t getting you the return most savvy real estate investors are interested in. And we are talking about less than $5000 per month after property management, high maintenance, etc.

Totally garbage cash flow of a property...
Stocks & bonds are overvalued as well by any measure. The reason people buy them is because they think they are headed even higher, at least over time. The same is true for this house. The dividends (rent) and capital gains (house price going up) are expected to accrue over time even if it doesn't look that great right now.

SpaceX
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Re: Sell or rent $2m house?

Post by SpaceX » Sun May 31, 2020 12:09 am

Being a landlord of a property while living in a different country seems absurd and makes no sense.

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HomerJ
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Re: Sell or rent $2m house?

Post by HomerJ » Sun May 31, 2020 1:04 am

anoop wrote:
Sun May 31, 2020 12:05 am
geerhardusvos wrote:
Sat May 30, 2020 11:57 pm
anoop wrote:
Sat May 30, 2020 11:45 pm
HomerJ wrote:
Sat May 30, 2020 11:35 pm
So hope the area stays hot.... Got it. Sounds more like gambling than an investment, but the OP sounds pretty rich, so I guess he can roll the dice.
With GDP forecast at -50%, small businesses closing at a record pace, and many bankruptcies, one might argue that investing in stocks is also a gamble. With NIRP around the corner, investing in fixed income is also a gamble. Everything is a gamble. It's all being backstopped by the fed (no fundamentals) and it all appears to be working. Will it continue to work? We don't know.

I don't like the idea of being a landlord, but I have 3 close friends who swear by real-estate and have been building up a portfolio to generate income in retirement.
Real estate is very typically not a $2 million house in SoCal. Most houses in our country go for $300k-400k. The one percent rule says that you should be able to rent out the property for 1% of its value per month. That’s $20,000 in this case. So even renting for $10,000/month isn’t getting you the return most savvy real estate investors are interested in. And we are talking about less than $5000 per month after property management, high maintenance, etc.

Totally garbage cash flow of a property...
Stocks & bonds are overvalued as well by any measure. The reason people buy them is because they think they are headed even higher, at least over time. The same is true for this house. The dividends (rent) and capital gains (house price going up) are expected to accrue over time even if it doesn't look that great right now.
Two very different things.

Stocks are expected to go higher in the long run because human capital is input into the system. A couple billion people go to work every day and input their productivity into the system.

Housing does not have this. In most of the country, housing appreciates about the same pace as inflation.

Only in certain areas does housing appreciate much faster, but this purely because of supply and demand. Supply and demand for Bay Area housing may indeed continue to appreciate at higher than average rates.

But maybe not.

It's much more of a gamble than stocks in the long run. But it could pay off more. Or less.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

barberakb
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Re: Sell or rent $2m house?

Post by barberakb » Sun May 31, 2020 2:48 am

Sell, that is a horrible ROI. I have a rental that is worth 190K that rents for $1575.

Only $5000 for a 2M house is insane IMO

DiploInvestor
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Re: Sell or rent $2m house?

Post by DiploInvestor » Sun May 31, 2020 3:27 am

Been there, done that. We rented our $500k house to our inlaws for two years while posted overseas, and even this lovely middle-aged couple did unwitting damage here and there. We decided to sell before being assigned overseas again. No way I would leave an investment of that size, let alone $2m, in the hands of strangers and go abroad hoping for the best. There is a lot more to being a landlord than watching the rent checks roll in.
"History doesn’t repeat itself, but it often rhymes." -- Mark Twain // "If you have a garden and a library, you have everything you need." — Cicero

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