Reason not to rent out your old house?

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panhead
Posts: 458
Joined: Fri Feb 22, 2013 10:53 am

Re: Reason not to rent out your old house?

Post by panhead »

cchrissyy wrote: Mon Sep 21, 2020 1:17 pm One key difference i don't see written yet is if you keep it as a rental, the ongoing income will be taxed every year, whereas, if you invested in the stock market and don't sell shares only the interest and dividends would be taxed. So you have control about if and when to take those gains.
This is true to a point, but depreciation and all the other expenses can offset the income to the point of showing a loss, and quite often do.
Jags4186
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Re: Reason not to rent out your old house?

Post by Jags4186 »

justsomeguy2018 wrote: Fri Sep 18, 2020 9:54 pm If you buy a new house and you can rent out your old house for more than your monthly mortgage payment (+taxes/insurance), is there a reason WHY you shouldn't do that? Don't you get to have your mortgage paid for, have a small income stream, and hold onto the property and capture rising home equity?

Or is the argument that you could take the profits from the house sale and put it in the market and that would provide a better and more stress-free return?
The reason most people don’t do this is because most people need the equity from the old house in order to purchase the new house.
Nomar
Posts: 12
Joined: Sun Oct 21, 2018 9:54 am

Re: Reason not to rent out your old house?

Post by Nomar »

barberakb wrote: Mon Sep 21, 2020 10:18 am
Nomar wrote: Mon Sep 21, 2020 6:14 am
barberakb wrote: Sun Sep 20, 2020 5:59 pm
Nomar wrote: Sun Sep 20, 2020 3:05 pm
barberakb wrote: Sun Sep 20, 2020 11:36 am Since retired have you thought about moving? Your $ would go ALOT farther in a low COL area
Yes. I would move to a lower cost area. I would still owe CA taxes if I kept it as a rental.
Have you been living in the house the last few years. If so, I would sell it, youd make a huge profit tax free.

Then you take that 1 million or whatever you get after selling and move somewhere thats a LCOL area with lower priced housing and live off or invest the rest.
I have considered it. There is no tax free profit except a sale upon my death. The gains will 2-3x the federal exemption and CA taxes gains as regular income. For me the decision is less about the risks or work of being a landlord, but the alternative uses of capital. Walking away with a $1+m sounds great but I have to live somewhere and produce a return on the remaining assets. The prospects for retirees as income investors is not looking so good with low rates for the foreseeable future.
Im confused. Why would you not have at least a partially tax free gain? I believe you can get $500,000 tax free gain for married, 250K for single If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale. You could take that gain, even after taxes. Pay cash for a nice house and still by 2 or 3 rentals if you wanted to in a LCOL area. A house worth over 1 million dollars is not a good rental if it only rents for 5000 a month. Trust me, Im all for rentals. I have 6 myself. But your #s dont work as a rental there.
I would get the 250k tax free gain. This last consideration is helpful. It is hard to assess the relative benefits of the use of +/-$1m (rough approximation of what I walk away with after taxes, re commissions etc...) At what amount of gross rent do you estimate would warrant considering keeping the house?One thing that many do not understand about coastal California is that they are not making anymore land. Likewise RE has been a good investment in part because we have a Coastal Act, single family zoning and Prop 13. Scarcity is baked into the cake.
barberakb
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Re: Reason not to rent out your old house?

Post by barberakb »

Some people don't buy/rent unless it meats the 1% rule. That doesn't work in ALOT of areas so i don't use it. But I try to get close to it.
For example I bought a $160,000 house that rents for $1300 a month. This is simplified but that is a good # where i live. Using this a 1M home should rent for about $8,000 a month. Yours isn't even close. Most people in real estate in Cali where you are make there money on appreciation, not rental cash flow. Which is what you could do now. If you really wanted to pay no takes, but live off the income generated you could decide where you want to live, preferably a LCOL area with a good rental market, and then do a 1031 exchange into another form of rental property. But still, 250K of tax free gain is pretty good. You could move to TN, or TX or NM or NV for example, and with the proceeds from the sale buy your dream house and 2 or 3 rental properties.
whoshighpitch
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Joined: Wed May 08, 2013 9:08 am

Re: Reason not to rent out your old house?

Post by whoshighpitch »

I became an accidental landlord in 2012 when we moved to a new location and were unable to sell the house. I just sold it a month ago after renting it for 8 years. All said and done I did fairly well moneywise but it really was a pain. I have 3 young kids and didn't want to put in the time and deal with the headaches anymore. It was an old house which required more maintenance which is something to consider. I don't regret it at all but I am happy to put the proceeds into Vanguard funds and let them ride.
flaccidsteele
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Location: Canada

Re: Reason not to rent out your old house?

Post by flaccidsteele »

justsomeguy2018 wrote: Fri Sep 18, 2020 9:54 pm If you buy a new house and you can rent out your old house for more than your monthly mortgage payment (+taxes/insurance), is there a reason WHY you shouldn't do that?
Terrible ROI. Dead money
justsomeguy2018 wrote: Fri Sep 18, 2020 9:54 pm Or is the argument that you could take the profits from the house sale and put it in the market and that would provide a better and more stress-free return?
Yes
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
flaccidsteele
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Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: Reason not to rent out your old house?

Post by flaccidsteele »

simplesimon wrote: Fri Sep 18, 2020 9:58 pm There's nothing necessarily wrong with it, but most people aren't rational about it. Look up "endowment effect".

If you had the home equity in cash, would you buy the house and rent it? Or invest it in mutual funds? Or do something else with it?
+1 ^ this
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
kaudrey
Posts: 1041
Joined: Fri Nov 22, 2013 2:40 pm

Re: Reason not to rent out your old house?

Post by kaudrey »

We are in process of buying a new house and selling our old one.

We don't want to deal with being landlords, and will use the $ from the sale of the old house to pay off the mortgage we are getting on the new house in the meantime. We don't like debt.
enclee
Posts: 82
Joined: Fri Apr 13, 2018 10:42 am

Re: Reason not to rent out your old house?

Post by enclee »

-Maintenance & Upkeep
-Repairs/Renovations after renter moves out
-Cash flow would be too low
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