Rental real estate in inflationary times

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Topic Author
slbnoob
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Rental real estate in inflationary times

Post by slbnoob »

I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
artpennypacker
Posts: 31
Joined: Sun Jul 04, 2021 8:39 am

Re: Rental real estate in inflationary times

Post by artpennypacker »

To me, 3.75% doesn’t seem low enough to keep me from removing a headache.

Are you asking about corporations buying single family homes to rent?
capilano
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Re: Rental real estate in inflationary times

Post by capilano »

watching this.

i’m in a similar boat. moving to another town.
should i sell or keep my current place.
capilano
Posts: 5
Joined: Wed Nov 24, 2021 1:31 pm

Re: Rental real estate in inflationary times

Post by capilano »

watching this.

i’m in a similar boat. moving to another town.
should i sell or keep my current place.
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Sandtrap
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Re: Rental real estate in inflationary times

Post by Sandtrap »

slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Cash flow negative can often be a poor business decision.

Sell.

J🌺
Wiki Bogleheads Wiki: Everything You Need to Know
Topic Author
slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

artpennypacker wrote: Sun May 08, 2022 7:52 pm To me, 3.75% doesn’t seem low enough to keep me from removing a headache.

Are you asking about corporations buying single family homes to rent?
Yes. Why are they buying now? What is it that they are betting on when they want to buy it from me? Is it the standard "inflation good for RE" argument as I noted above?
Topic Author
slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

Sandtrap wrote: Sun May 08, 2022 8:27 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Cash flow negative can often be a poor business decision.

Sell.

J🌺
I would agree, but the higher order effect here is that the capital appreciation on the house can more than offset the (slight) negative cash flow. Also, does the argument "for high and stable inflation, real estate has been a historically good bet to hold or appreciate value" hold?
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Sandtrap
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Re: Rental real estate in inflationary times

Post by Sandtrap »

slbnoob wrote: Sun May 08, 2022 9:21 pm
Sandtrap wrote: Sun May 08, 2022 8:27 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Cash flow negative can often be a poor business decision.

Sell.

J🌺
I would agree, but the higher order effect here is that the capital appreciation on the house can more than offset the (slight) negative cash flow. Also, does the argument "for high and stable inflation, real estate has been a historically good bet to hold or appreciate value" hold?
Good point
Well said.

J🌺
Wiki Bogleheads Wiki: Everything You Need to Know
young-ish
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Re: Rental real estate in inflationary times

Post by young-ish »

slbnoob wrote: Sun May 08, 2022 6:28 pm
Cons of selling:
- Reduced diversification (selling RE, will likely buy equities over time)
Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
frostyblue
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Re: Rental real estate in inflationary times

Post by frostyblue »

slbnoob wrote: Sun May 08, 2022 9:19 pm
artpennypacker wrote: Sun May 08, 2022 7:52 pm To me, 3.75% doesn’t seem low enough to keep me from removing a headache.

Are you asking about corporations buying single family homes to rent?
Yes. Why are they buying now? What is it that they are betting on when they want to buy it from me? Is it the standard "inflation good for RE" argument as I noted above?
These corporations didn't just start buying now and their actions have little to do with any immediate view on inflation. Invitation Homes & American Homes 4 Rent are two of the largest institutional investors in the single-family rental business & they started buying homes back in ~'11-'12; when the economy was healing, homes were dirt cheap and could be purchased in scale via large foreclosure auctions. They've been buying ever since. There are just a lot more of these type of investors now, they're bigger, and they're competing more in the open market -- so all of this just makes them more visible.

These corporations have built up large, scaled platforms, e.g. large staff of regional property managers, maintenance crews, cheaper prices for housing materials /goods, etc.. They can take most half-decent homes in half-decent neighborhoods and get a decent return from them (long as the rental market holds up). What is a good investment for these corporations - e.g. maybe your rental - is not necessarily a good investment for you. If you have interest, you can look at the quarterly/annual reports Invitation Homes & American Homes 4 Rent put out (they're both publicly traded REITs). Among other things, they discuss their outlook for the single family rental sector in their reporting..

as an aside, there has been lots of research on how well real estate hedges against or benefits from high inflation. The short answer would probably be, "it depends." If high inflation is at least partly due to very strong economic growth, it can be a great thing; the past year has seen record rental growth for apartments and many other real estate sectors.. but if higher inflation is coupled with rising rates, and slowing growth, it's a much more dicey situation, not as easy to raise rents and higher rates can negatively impact real estate valuations
Last edited by frostyblue on Sun May 08, 2022 10:50 pm, edited 1 time in total.
SouthernInvestor
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Re: Rental real estate in inflationary times

Post by SouthernInvestor »

Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
eric321
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Re: Rental real estate in inflationary times

Post by eric321 »

Can you raise rents further?
Rents have been going up across the country. If you can charge more than you are now, does that change the cash flow situation?
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AerialWombat
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Re: Rental real estate in inflationary times

Post by AerialWombat »

young-ish wrote: Sun May 08, 2022 10:33 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm
Cons of selling:
- Reduced diversification (selling RE, will likely buy equities over time)
Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
For entertainment purposes only.
av111
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Re: Rental real estate in inflationary times

Post by av111 »

slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
OP

Re negative cash flow, are you showing principal payments in the expenses side? Share your numbers. 2014 property in Houston should be positive
AV111
humblecoder
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Re: Rental real estate in inflationary times

Post by humblecoder »

slbnoob wrote: Sun May 08, 2022 6:28 pm Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)
I know you say that you aren't market timing, but it seems like much of your thinking smells like market timing (cash out while RE is still hot, buy stocks at reduced market levels, how will RE perform in inflationary times, etc).

Here is an alternative way of thinking about it.

In your head, you must have some idea of what you want your asset allocation to be, specifically your real estate allocation. Is the current value of your rental far above that target? If so, then you might want to sell/rebalance. If not, maybe you stay the course.

I fully understand that you can't (easily) sell off part of your rental property, so if you do sell, you'd go from X% to 0%. However, you can always sell the rental property and then invest part of the proceeds in a more liquid real estate investment (ex: REIT's, etc) if you want a certain level of real estate exposure as part of your asset allocation.

If you frame it up as an asset allocation question, I think that fully removes market timing from the decision making process, and puts your thinking more in-line with standards BH principles.
London
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Re: Rental real estate in inflationary times

Post by London »

AerialWombat wrote: Sun May 08, 2022 11:27 pm
young-ish wrote: Sun May 08, 2022 10:33 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm
Cons of selling:
- Reduced diversification (selling RE, will likely buy equities over time)
Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
What are the four distinct ways?
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willthrill81
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Re: Rental real estate in inflationary times

Post by willthrill81 »

Unless you can increase the rent to make the property cash flow positive, sell it immediately.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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willthrill81
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Re: Rental real estate in inflationary times

Post by willthrill81 »

SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
It's cash flow negative. The only way the OP can make money now is if the underlying real estate increases in value faster than the negative cash flow. That's speculative, so the property should be sold.

Not all RE is a good investment.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
Maverick3320
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Re: Rental real estate in inflationary times

Post by Maverick3320 »

Sandtrap wrote: Sun May 08, 2022 9:39 pm
slbnoob wrote: Sun May 08, 2022 9:21 pm
Sandtrap wrote: Sun May 08, 2022 8:27 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Cash flow negative can often be a poor business decision.

Sell.

J🌺
I would agree, but the higher order effect here is that the capital appreciation on the house can more than offset the (slight) negative cash flow. Also, does the argument "for high and stable inflation, real estate has been a historically good bet to hold or appreciate value" hold?
Good point
Well said.

J🌺
""for high and stable inflation, real estate has been a historically good bet to hold or appreciate value"

That's an interesting argument. One would think that the higher interest rates by the Fed to combat high inflation would hurt the real estate market. I suppose if house prices rise, more people rent, which would be broadly good for landlords, but landlords still often have mortgages too, don't they?
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AerialWombat
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Re: Rental real estate in inflationary times

Post by AerialWombat »

London wrote: Mon May 09, 2022 8:09 am
AerialWombat wrote: Sun May 08, 2022 11:27 pm
young-ish wrote: Sun May 08, 2022 10:33 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm
Cons of selling:
- Reduced diversification (selling RE, will likely buy equities over time)
Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
What are the four distinct ways?
Cash flow from rents, cash flow from depreciation, debt paydown by rents, appreciation.
For entertainment purposes only.
GPG
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Re: Rental real estate in inflationary times

Post by GPG »

Calculate your total asset increase less expenses. Over the last 8 years ample profit should be realized. Find the right renters or hire a property mgr.
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rocket354
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Re: Rental real estate in inflationary times

Post by rocket354 »

slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Also, could you please explain more the bolded/italicized part? 35-50% of its purchase price means that if you paid, say, $300k, it is now worth somewhere from $105k - $150k. I'm having a hard time believing that's what you meant, although obviously every specific piece of RE is unique.
Topic Author
slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

rocket354 wrote: Mon May 09, 2022 10:01 am
slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Also, could you please explain more the bolded/italicized part? 35-50% of its purchase price means that if you paid, say, $300k, it is now worth somewhere from $105k - $150k. I'm having a hard time believing that's what you meant, although obviously every specific piece of RE is unique.
Sure. I should have said "appreciated by" instead of "appreciated to". Point being, depending on what measure I use for estimating current value, the house is probably worth around $420k-460k currently.
Topic Author
slbnoob
Posts: 495
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Re: Rental real estate in inflationary times

Post by slbnoob »

AerialWombat wrote: Mon May 09, 2022 9:27 am
London wrote: Mon May 09, 2022 8:09 am
AerialWombat wrote: Sun May 08, 2022 11:27 pm
young-ish wrote: Sun May 08, 2022 10:33 pm
slbnoob wrote: Sun May 08, 2022 6:28 pm
Cons of selling:
- Reduced diversification (selling RE, will likely buy equities over time)
Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
What are the four distinct ways?
Cash flow from rents, cash flow from depreciation, debt paydown by rents, appreciation.
GPG wrote: Mon May 09, 2022 9:41 am Calculate your total asset increase less expenses. Over the last 8 years ample profit should be realized. Find the right renters or hire a property mgr.
av111 wrote: Sun May 08, 2022 11:40 pm Re negative cash flow, are you showing principal payments in the expenses side? Share your numbers. 2014 property in Houston should be positive
My current situation is as follows:

Cash flow from rents: slightly negative, about $1-2k loss per year,
Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Debt paydown by rents: about $7k per year, putting overall rental proposition in the positive (even though cash flow is negative)
Appreciation: 35-50% appreciation over past 8 years, most of it in the last 2 years.

A rent increase of $200 can make me cash flow positive but I'd likely go to a $150 rent increase if I do rent it again this summer.
Last edited by slbnoob on Mon May 09, 2022 10:42 am, edited 1 time in total.
Californiastate
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Re: Rental real estate in inflationary times

Post by Californiastate »

Keep it.
Topic Author
slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

humblecoder wrote: Mon May 09, 2022 7:53 am
slbnoob wrote: Sun May 08, 2022 6:28 pm Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)
I know you say that you aren't market timing, but it seems like much of your thinking smells like market timing (cash out while RE is still hot, buy stocks at reduced market levels, how will RE perform in inflationary times, etc).

Here is an alternative way of thinking about it.

In your head, you must have some idea of what you want your asset allocation to be, specifically your real estate allocation. Is the current value of your rental far above that target? If so, then you might want to sell/rebalance. If not, maybe you stay the course.

I fully understand that you can't (easily) sell off part of your rental property, so if you do sell, you'd go from X% to 0%. However, you can always sell the rental property and then invest part of the proceeds in a more liquid real estate investment (ex: REIT's, etc) if you want a certain level of real estate exposure as part of your asset allocation.

If you frame it up as an asset allocation question, I think that fully removes market timing from the decision making process, and puts your thinking more in-line with standards BH principles.
Thanks. To be clear, I very much am market-timing, just that I didn't need market timing advise per se, but data and perspectives. I have thought about REITs as an alternative, but those don't appear all that more compelling compared to broader equities. As another commenter mentioned, RE just has distinct characteristics. Another reason, I am hesitating selling is that I may never be able to get back into RE, especially at the mortgage rate I have.
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Re: Rental real estate in inflationary times

Post by ClassII »

With how much rent has gone up in just this last year (arguable if it's sustainable but lets go with it) I don't see how you can still be cash flow negative on a property from 2014.

I say keep it if nothing else but for diversification purposes.
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slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
Yeah, if I decide to keep it, it won't be because of higher expected returns but mostly as a hedge (against high and stable inflation) and "diversification".
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slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

frostyblue wrote: Sun May 08, 2022 10:34 pm
slbnoob wrote: Sun May 08, 2022 9:19 pm
artpennypacker wrote: Sun May 08, 2022 7:52 pm To me, 3.75% doesn’t seem low enough to keep me from removing a headache.

Are you asking about corporations buying single family homes to rent?
Yes. Why are they buying now? What is it that they are betting on when they want to buy it from me? Is it the standard "inflation good for RE" argument as I noted above?
These corporations didn't just start buying now and their actions have little to do with any immediate view on inflation. Invitation Homes & American Homes 4 Rent are two of the largest institutional investors in the single-family rental business & they started buying homes back in ~'11-'12; when the economy was healing, homes were dirt cheap and could be purchased in scale via large foreclosure auctions. They've been buying ever since. There are just a lot more of these type of investors now, they're bigger, and they're competing more in the open market -- so all of this just makes them more visible.

These corporations have built up large, scaled platforms, e.g. large staff of regional property managers, maintenance crews, cheaper prices for housing materials /goods, etc.. They can take most half-decent homes in half-decent neighborhoods and get a decent return from them (long as the rental market holds up). What is a good investment for these corporations - e.g. maybe your rental - is not necessarily a good investment for you. If you have interest, you can look at the quarterly/annual reports Invitation Homes & American Homes 4 Rent put out (they're both publicly traded REITs). Among other things, they discuss their outlook for the single family rental sector in their reporting..

as an aside, there has been lots of research on how well real estate hedges against or benefits from high inflation. The short answer would probably be, "it depends." If high inflation is at least partly due to very strong economic growth, it can be a great thing; the past year has seen record rental growth for apartments and many other real estate sectors.. but if higher inflation is coupled with rising rates, and slowing growth, it's a much more dicey situation, not as easy to raise rents and higher rates can negatively impact real estate valuations
Thank you for this data. I will look into these public REITs' outlook for single family homes.
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Re: Rental real estate in inflationary times

Post by AerialWombat »

slbnoob wrote: Mon May 09, 2022 10:36 am Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Just to clarify, are you saying that you’re not currently claiming the allowable depreciation as a Schedule E deduction each year, or that your income is high enough that you’re accumulating a passive activity loss carryover?

If the latter, all is well. If the former, all is not well. :beer
For entertainment purposes only.
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Re: Rental real estate in inflationary times

Post by humblecoder »

slbnoob wrote: Mon May 09, 2022 10:40 am
humblecoder wrote: Mon May 09, 2022 7:53 am
slbnoob wrote: Sun May 08, 2022 6:28 pm Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)
I know you say that you aren't market timing, but it seems like much of your thinking smells like market timing (cash out while RE is still hot, buy stocks at reduced market levels, how will RE perform in inflationary times, etc).

Here is an alternative way of thinking about it.

In your head, you must have some idea of what you want your asset allocation to be, specifically your real estate allocation. Is the current value of your rental far above that target? If so, then you might want to sell/rebalance. If not, maybe you stay the course.

I fully understand that you can't (easily) sell off part of your rental property, so if you do sell, you'd go from X% to 0%. However, you can always sell the rental property and then invest part of the proceeds in a more liquid real estate investment (ex: REIT's, etc) if you want a certain level of real estate exposure as part of your asset allocation.

If you frame it up as an asset allocation question, I think that fully removes market timing from the decision making process, and puts your thinking more in-line with standards BH principles.
Thanks. To be clear, I very much am market-timing, just that I didn't need market timing advise per se, but data and perspectives. I have thought about REITs as an alternative, but those don't appear all that more compelling compared to broader equities. As another commenter mentioned, RE just has distinct characteristics. Another reason, I am hesitating selling is that I may never be able to get back into RE, especially at the mortgage rate I have.
Point taken with regards to your clarification about market timing. My suggestion still stands. If you are still at (or in the vicinity) of your target asset allocation for real estate, then keep it. If you are heavily overweighted in RE, then consider selling.

I used REIT as one example of a way to get RE exposure without holding properties directly, but there are other methods. Over the past decade, a number of online real estate investing syndicates have arisen. I won't name names but a quick google search will turn up some options in this space. Some are only available to accredited investors, though, so this might be a consideration. An option like this might be preferable since you can get some diversification across properties/geographies/etc. Right now, all of your RE eggs are in one basket.
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Re: Rental real estate in inflationary times

Post by sandan »

slbnoob wrote: Mon May 09, 2022 10:44 am
SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
Yeah, if I decide to keep it, it won't be because of higher expected returns but mostly as a hedge (against high and stable inflation) and "diversification".
That's unlikely to be true.

Is the price of the home less than 20% of your net worth? If it's not, it's close to a pure gamble and works in the opposite direction of a hedge or diversification.
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Re: Rental real estate in inflationary times

Post by av111 »

slbnoob wrote: Mon May 09, 2022 10:36 am
AerialWombat wrote: Mon May 09, 2022 9:27 am
London wrote: Mon May 09, 2022 8:09 am
AerialWombat wrote: Sun May 08, 2022 11:27 pm
young-ish wrote: Sun May 08, 2022 10:33 pm

Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
What are the four distinct ways?
Cash flow from rents, cash flow from depreciation, debt paydown by rents, appreciation.
GPG wrote: Mon May 09, 2022 9:41 am Calculate your total asset increase less expenses. Over the last 8 years ample profit should be realized. Find the right renters or hire a property mgr.
av111 wrote: Sun May 08, 2022 11:40 pm Re negative cash flow, are you showing principal payments in the expenses side? Share your numbers. 2014 property in Houston should be positive
My current situation is as follows:

Cash flow from rents: slightly negative, about $1-2k loss per year,
Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Debt paydown by rents: about $7k per year, putting overall rental proposition in the positive (even though cash flow is negative)
Appreciation: 35-50% appreciation over past 8 years, most of it in the last 2 years.

A rent increase of $200 can make me cash flow positive but I'd likely go to a $150 rent increase if I do rent it again this summer.
OP

Also check how the market rents compare with the rent you are charging. If you are not able to profit by $200 or so after paying mortgage and other costs out of the market rent, sell now before inventory shoots up and prices go down
AV111
avginvestor
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Re: Rental real estate in inflationary times

Post by avginvestor »

I think a bigger question is do you like being a landlord.

As an accidental landlord myself for a home i got into in 2005 - 2020, I'm SOOO much happier not having to worry about tenants and the crap that I've had to deal with over the years. I'm pretty sure the stress of some of the situations took years out of my life.
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Re: Rental real estate in inflationary times

Post by BrooklynInvest »

avginvestor wrote: Mon May 09, 2022 11:24 am I think a bigger question is do you like being a landlord.

As an accidental landlord myself for a home i got into in 2005 - 2020, I'm SOOO much happier not having to worry about tenants and the crap that I've had to deal with over the years. I'm pretty sure the stress of some of the situations took years out of my life.
This is how I look at it. I rent out 1/3 of my 2-family house. I view it as a part time job that pays X dollars. After 12 years the paycheck is pretty good. Have had some stresses but mostly just more household stuff to fix when it breaks. That said, there's no way I'm doing the extra work if I'm cash flow negative. Too many hassles for that.

Good luck OP.
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slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

AerialWombat wrote: Mon May 09, 2022 10:52 am
slbnoob wrote: Mon May 09, 2022 10:36 am Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Just to clarify, are you saying that you’re not currently claiming the allowable depreciation as a Schedule E deduction each year, or that your income is high enough that you’re accumulating a passive activity loss carryover?

If the latter, all is well. If the former, all is not well. :beer
LOL, please don't tell me I've been doing this all wrong :)
I've trusted H&R Block all these years and have in fact been, carrying over passive activity losses every year. This loss is a combination of my (small) loss in rental income - expenses (incl. mortgage, insurance, property tax, etc.) and depreciation. I looked forward to realizing this loss to offset my earned income (through W2) when I disposed off / sold my house.
Does this sound OK? What is the "high enough income" you talk about? :)
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Re: Rental real estate in inflationary times

Post by AerialWombat »

slbnoob wrote: Mon May 09, 2022 12:23 pm
AerialWombat wrote: Mon May 09, 2022 10:52 am
slbnoob wrote: Mon May 09, 2022 10:36 am Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Just to clarify, are you saying that you’re not currently claiming the allowable depreciation as a Schedule E deduction each year, or that your income is high enough that you’re accumulating a passive activity loss carryover?

If the latter, all is well. If the former, all is not well. :beer
LOL, please don't tell me I've been doing this all wrong :)
I've trusted H&R Block all these years and have in fact been, carrying over passive activity losses every year. This loss is a combination of my (small) loss in rental income - expenses (incl. mortgage, insurance, property tax, etc.) and depreciation. I looked forward to realizing this loss to offset my earned income (through W2) when I disposed off / sold my house.
Does this sound OK? What is the "high enough income" you talk about? :)
For your reading pleasure:

https://www.irs.gov/publications/p925#e ... 1000104571

and

https://www.irs.gov/publications/p925#e ... 1000104575
For entertainment purposes only.
Hallo basu
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Re: Rental real estate in inflationary times

Post by Hallo basu »

slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?

How much per sqft are you charging for rent? I am from Houston as well (Cypress) and in a newly built community like Bridgeland, I see rent going at $1.08/sq ft. At 2.75 % APR, that would barely cover the mortgage and property taxes, leaving a couple of 100bucks. If you pay PMI, that gets little smaller. Not sure how old/new your property is, but as someone mentioned here already, can you increase your rent?
~ A struggling Oil Man
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Re: Rental real estate in inflationary times

Post by FreelancerNYC »

slbnoob wrote: Mon May 09, 2022 12:23 pm
AerialWombat wrote: Mon May 09, 2022 10:52 am
slbnoob wrote: Mon May 09, 2022 10:36 am Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Just to clarify, are you saying that you’re not currently claiming the allowable depreciation as a Schedule E deduction each year, or that your income is high enough that you’re accumulating a passive activity loss carryover?

If the latter, all is well. If the former, all is not well. :beer
LOL, please don't tell me I've been doing this all wrong :)
I've trusted H&R Block all these years and have in fact been, carrying over passive activity losses every year. This loss is a combination of my (small) loss in rental income - expenses (incl. mortgage, insurance, property tax, etc.) and depreciation. I looked forward to realizing this loss to offset my earned income (through W2) when I disposed off / sold my house.
Does this sound OK? What is the "high enough income" you talk about? :)
Sounds like it’s time to add a CPA to your list of expenses! I finally had to surrender the job this year after years of TurboTax.
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slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

AerialWombat wrote: Mon May 09, 2022 3:27 pm
slbnoob wrote: Mon May 09, 2022 12:23 pm
AerialWombat wrote: Mon May 09, 2022 10:52 am
slbnoob wrote: Mon May 09, 2022 10:36 am Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Just to clarify, are you saying that you’re not currently claiming the allowable depreciation as a Schedule E deduction each year, or that your income is high enough that you’re accumulating a passive activity loss carryover?

If the latter, all is well. If the former, all is not well. :beer
LOL, please don't tell me I've been doing this all wrong :)
I've trusted H&R Block all these years and have in fact been, carrying over passive activity losses every year. This loss is a combination of my (small) loss in rental income - expenses (incl. mortgage, insurance, property tax, etc.) and depreciation. I looked forward to realizing this loss to offset my earned income (through W2) when I disposed off / sold my house.
Does this sound OK? What is the "high enough income" you talk about? :)
For your reading pleasure:

https://www.irs.gov/publications/p925#e ... 1000104571

and

https://www.irs.gov/publications/p925#e ... 1000104575
FreelancerNYC wrote: Tue May 10, 2022 12:00 am Sounds like it’s time to add a CPA to your list of expenses! I finally had to surrender the job this year after years of TurboTax.
Thanks for the links. Looks like I am doing the right thing. My MAGI is past the "phaseout" so I have to carry forward the passive losses.
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slbnoob
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Re: Rental real estate in inflationary times

Post by slbnoob »

Hallo basu wrote: Mon May 09, 2022 11:42 pm How much per sqft are you charging for rent? I am from Houston as well (Cypress) and in a newly built community like Bridgeland, I see rent going at $1.08/sq ft. At 2.75 % APR, that would barely cover the mortgage and property taxes, leaving a couple of 100bucks. If you pay PMI, that gets little smaller. Not sure how old/new your property is, but as someone mentioned here already, can you increase your rent?
My property is in Katy and my rent is around 0.82, hoping to go up to $0.87/sq.ft. I doubt it can go much higher than this given comps around. As mentioned, the rent barely covers all expenses, losing $1k a year.
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Re: Rental real estate in inflationary times

Post by BernardShakey »

willthrill81 wrote: Mon May 09, 2022 8:12 am
SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
It's cash flow negative. The only way the OP can make money now is if the underlying real estate increases in value faster than the negative cash flow. That's speculative, so the property should be sold.

Not all RE is a good investment.
A little negative cash flow in an inflationary environment is not a big deal. Real estate rents go up, you write off a bunch of your expenses against the income, and generally the property appreciates over time. I'd keep it.

I find having part of my net worth in stocks, part in bonds/ FI, and part in real estate provides diversification.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Rental real estate in inflationary times

Post by BernardShakey »

slbnoob wrote: Sun May 08, 2022 6:28 pm I'm not asking for market timing advice but rather data and framework to help me decide.

I have a rental single-family house in the greater Houston area which I bought just before the 2014 oil crash. I became an accidental landlord in 2018 and since then the house is tenant occupied. The house has appreciated to close to 35-50% of its purchase price in 2014 when looking at comparative listings to Redfin/Zillow estimates. I have an opportunity to sell the house in July or try to rent it again. The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses. House is lightly used for its 15 years of existence but it is about the time big expenses can rear their ugly head - AC, carpet, may be roof.

Pros of selling:
- Cash out the capital appreciation with the real estate market still looking hot (for a seller)
- Get cash ready to deploy in equities given reduced market levels

Cons of selling:
- Giving up a low-ish 3.75% mortgage rate (~17 years remaining) in times of higher interest rates
- Reduced diversification (selling RE, will likely buy equities over time)

I'd like to get perspectives on:
- If I sell, what would I be giving up by giving up on the relatively low 3.75% interest rate in inflationary times?
- Why are commercial landlords (Berkshire Hathaway et. al.) continuing to buy? Or are they?
- Assuming high and stable inflation (just watched Aswath Damodaran's latest video), real estate has been a historically good bet to hold or appreciate value. Would keeping the rental be a risk-off move?
Not sure how old you are, or the rest of your financial picture, but I'd be inclined to keep it. The diversification factor (away from equities) is attractive. Rental real estate in the 1970's in many locations was great as stocks and bonds struggled and inflation persisted. And it hasn't been too bad in other timeframes either, less the Great Recession and maybe the mid-90's for a bit.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Rental real estate in inflationary times

Post by AerialWombat »

slbnoob wrote: Tue May 10, 2022 12:03 pm Thanks for the links. Looks like I am doing the right thing. My MAGI is past the "phaseout" so I have to carry forward the passive losses.
OK, great. Just wanted to make sure, since the wording of your earlier comment could have been interpreted as not taking the depreciation deduction at all. Believe it or not, that's not a rare problem.
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Re: Rental real estate in inflationary times

Post by SouthernInvestor »

willthrill81 wrote: Mon May 09, 2022 8:12 am
SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
It's cash flow negative. The only way the OP can make money now is if the underlying real estate increases in value faster than the negative cash flow. That's speculative, so the property should be sold.

Not all RE is a good investment.
True, but I've owned a lot of RE that was negative until it was positive, and that it was REALLY positive. YMMV.
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Re: Rental real estate in inflationary times

Post by willthrill81 »

SouthernInvestor wrote: Fri May 13, 2022 1:42 pm
willthrill81 wrote: Mon May 09, 2022 8:12 am
SouthernInvestor wrote: Sun May 08, 2022 10:41 pm Personally, I would keep it. I think that owning some rental property is a good thing.

I don't think it's likely to give you better returns than the market.
It's cash flow negative. The only way the OP can make money now is if the underlying real estate increases in value faster than the negative cash flow. That's speculative, so the property should be sold.

Not all RE is a good investment.
True, but I've owned a lot of RE that was negative until it was positive, and that it was REALLY positive. YMMV.
How so? Did you finally pay off the mortgage? Did your rents suddenly jump up? Or are you counting home appreciation beyond inflation, which cannot be counted upon before it happens?
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Rental real estate in inflationary times

Post by togb »

A few things to think about:
You might be slightly negative on a cash flow basis, but you're also getting the depreciation write off. If you sell, you will obviously lose that write off-- and you'll also have recaptured depreciation for all the years you rented it, which will count as ordinary income. Big tax event.
You will also owe capital gains tax.

I was tempted to sell my rental property, which has almost doubled in value. When I realized the tax bite would be about $60K, I've paused. This property cash flows nicely, and is just 7 years old so there are some differences. But for now I'm keeping it.

Finally, don't worry about replacing the roof. You're in Texas, there will be a hailstorm, your insurance will cover it. It's not a huge deal. I figured that if I had a deductable for a new roof AND replaced carpet AND painted the place AND replaced the backyard fencing all in one year, it would still be be <12K. The changes I have to do ALL those in one year is pretty slim. So I've set aside part of the rent every month-- the reserves are in place. I sort of like an alternate income stream, and am horrified at paying $60K in taxes so I have not listed it for sale.

YMMV
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Re: Rental real estate in inflationary times

Post by AerialWombat »

togb wrote: Fri May 13, 2022 10:17 pm If you sell, you will obviously lose that write off-- and you'll also have recaptured depreciation for all the years you rented it, which will count as ordinary income. Big tax event.
You will also owe capital gains tax.
Depreciation recapture tax rate is capped at 25%. Capital gains will be, at most, 23.8% inclusive of NIIT. For most folks, it will be 15% to 18.8%. Plus state taxes, if applicable.

All in all, it’s much lower than regular income tax rates, and isn’t the end of the world. “Don’t let the tax tail wag the investing dog.”

Just closed on the sale of a rental today. Will have no quibble over sending the IRS their cut next week.
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Re: Rental real estate in inflationary times

Post by young-ish »

slbnoob wrote: Mon May 09, 2022 10:36 am
AerialWombat wrote: Mon May 09, 2022 9:27 am
London wrote: Mon May 09, 2022 8:09 am
AerialWombat wrote: Sun May 08, 2022 11:27 pm
young-ish wrote: Sun May 08, 2022 10:33 pm

Question, why would your diversification decline if you sold the SFH & bought equities? It would seem to me that a total stock market index fund would increase your diversification. No?
Real estate is a completely different asset class than stocks. It’s not correlated to the stock market. It doesn’t behave like stocks. Direct rental ownership has tax characteristics that are very different from stocks. Real estate generates returns in four distinct ways, instead of two. And much more.

Real estate is just as different from stocks as bonds and gold are.
What are the four distinct ways?
Cash flow from rents, cash flow from depreciation, debt paydown by rents, appreciation.
GPG wrote: Mon May 09, 2022 9:41 am Calculate your total asset increase less expenses. Over the last 8 years ample profit should be realized. Find the right renters or hire a property mgr.
av111 wrote: Sun May 08, 2022 11:40 pm Re negative cash flow, are you showing principal payments in the expenses side? Share your numbers. 2014 property in Houston should be positive
My current situation is as follows:

Cash flow from rents: slightly negative, about $1-2k loss per year,
Cash flow from depreciation: deferred, realizable when I sell house or when income > expenses
Debt paydown by rents: about $7k per year, putting overall rental proposition in the positive (even though cash flow is negative)
Appreciation: 35-50% appreciation over past 8 years, most of it in the last 2 years.

A rent increase of $200 can make me cash flow positive but I'd likely go to a $150 rent increase if I do rent it again this summer.
I didn't see a response from the topic author on diversification... I'm just not sure how one single family house is diversified. We are not talking about a REIT index fund with hundreds of holdings managing thousands of properties.
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Re: Rental real estate in inflationary times

Post by chipperd »

slbnoob wrote: Sun May 08, 2022 6:28 pm The house has always been slightly cash flow negative ever since we put it for rent due to rent, reduced mortgage amortization period and expenses.
In addition to costing you money, how much time is this rental costing you?
All those little moments and distractions, plus the big ones, add up time wise.
In my mind, any investment that isn't bringing pleasure, that is losing money, is also costing you your life.
Literally.
If it were me, I would add up the dollars lost since ownership, plus my time since ownership, and ask, "If this scenario was offered to me, would I take it?" and decide if paying in both time and $ is worth the diversification.
Again, if it were me (I don't like managing rentals and all those headaches, or paying someone else to do so at a loss) I would sell.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
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