$1.1 million rental portfolio, but tired of being a landlord

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teelainen
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$1.1 million rental portfolio, but tired of being a landlord

Post by teelainen » Mon Apr 15, 2019 12:55 pm

Scenario:
- Individual investor owns 10 single-family rental properties. The total market value of all the properties is about $1.1 million.
- The properties are all paid off, free and clear, with no mortgages. They were all purchased about 10 years ago for a cost basis of about $500k.
- This investor is tired of being a landlord, tired of dealing with tenants, toilets, rent collecting, filling vacancies, and all the tenant drama.
- This investor spends about 5-10 hours per week on average dealing with repairs, rents, filling vacancies as needed, taxes, paperwork, etc.
- The real estate market in this city is expected to grow at about 2%-3% per year.

Numbers:
- Annual gross revenue is $130,000.
- Net profit is about $40k-$50k per year (it varies each year depending on how many repairs are needed).
- Each year, this investor gets to write off about $18k in depreciation (the IRS allows residential real estate to be depreciated over 27.5 years).
- So, in addition to the net profit of $40k-$50k per year, the $18k in depreciation expense is a nice tax saving bonus as well.

Other Notes:
- The investor depends on this $40k-$50k per year to pay for living expenses, because the investor currently doesn't have a full-time job.
- Keep in mind that if the investor sells all the properties, there will be capital gains taxes on about $600k of the sale.
- So, the investor may only have about $900k in cash after everything is sold and all the taxes are paid.

Questions:
1. Is $40k-$50k net profit + $18k in depreciation per year a good "return" on $1.1 million worth of assets? Or can this investor make the same amount of money (with less work) buying municipal bonds?
2. Besides municipal bonds, is there anything else this investor can buy to safely get $40k-$50k per year?
3. The investor has considered doing a 1031 exchange in order to trade the 10 properties for something else (and defer the taxes), but it is hard to find a buyer who is willing to buy all 10 properties at once and still pay full market value for all of them.
4. Any other tips or advice for this investor?

Remember that the investor will only have about $900k in cash after everything is sold and all the taxes are paid. Thanks.

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FelixTheCat
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by FelixTheCat » Mon Apr 15, 2019 1:00 pm

teelainen wrote:
Mon Apr 15, 2019 12:55 pm
- This investor is tired of being a landlord, tired of dealing with tenants, toilets, rent collecting, filling vacancies, and all the tenant drama.
I would hire a property manager.
Felix is a wonderful, wonderful cat.

depressed
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by depressed » Mon Apr 15, 2019 1:08 pm

I may be wrong, but isn't the $18,000/year depreciation only a temporary tax break? If you sell the properties, all that depreciation shows up as some kind of income on your tax return (unless you die and your heirs sell with a stepped-up basis). Does your $900,000 net sales take into account the tax on that recovered depreciation?

Also, I would think that the $40,000 to $50,000 / year income has to be partly considered income from your 5 to 10 hours of labor, rather than a complete investment return on your $900,000 assets. So, even if you sell the property and invest the resulting money for less annual income, that might not be too bad when you consider that you're tired of doing that 5 to 10 hours of work per week.

SovereignInvestor
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by SovereignInvestor » Mon Apr 15, 2019 1:22 pm

Yeah the depreciation reduces the cost basis so when you sell you are taxed on depreciation recapture and that is at higher tax rates usually than capital gains.

It seems like the properties are yielding 5% roughly and then grow at around 2%, for 7% total return in long run.

Stocks are more passive but riskier and usually provide higher returns but with lower cash yields.

You may be able to find some bonds near the 5%, but they wont have any growth like the rents from the properties.

zeal
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by zeal » Mon Apr 15, 2019 1:36 pm

A friend of mine grew tired of being a landlord and sold his eight properties off individually. Not sure how he has battled the tax situation, as there may be some workarounds that I don't know of, but he now spends his time flipping and wholesaling houses. Still dealing with contractors but no longer dealing with tenants. He is much happier these days!

Leemiller
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Leemiller » Mon Apr 15, 2019 1:43 pm

You might want to get some 1031 advice. I don’t believe you need someone to buy all ten from you, I thought you could escrow funds for 6 months or so pending finding a replacement property. Also, not sure if you’re including maintanence costs by reserving funds annual. Two new roofs would put a huge dent in your returns.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Jack FFR1846 » Mon Apr 15, 2019 1:45 pm

teelainen wrote:
Mon Apr 15, 2019 12:55 pm
bla bla bla bla bla bla
- This investor is tired of being a landlord
bla bla bla bla bla bla
Sell the properties and take jobs you think are fun.
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DonIce
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by DonIce » Mon Apr 15, 2019 1:51 pm

teelainen wrote:
Mon Apr 15, 2019 12:55 pm
Questions:
1. Is $40k-$50k net profit + $18k in depreciation per year a good "return" on $1.1 million worth of assets? Or can this investor make the same amount of money (with less work) buying municipal bonds?
4-5% is about the long run return on real estate from what I recall. You're getting a fine return.
- This investor is tired of being a landlord, tired of dealing with tenants, toilets, rent collecting, filling vacancies, and all the tenant drama.
Find out how much it will cost to have someone manage it for you. If you can still get a ~3% return net of management expenses I'd probably keep the property.

DVMResident
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by DVMResident » Mon Apr 15, 2019 1:53 pm

OP's age? Any other assets, e.g. 401(k), Social Security? How much income do you need? How close are you to Social Security?

At first blush, CAP rate is good but net is a bit low for a non-mortgage property (maybe high taxes or maintenance?). You are very concentrated in one city and one specific type of RE. You are carrying systemic risk in your portfolio.

In addition to the $40-50k cash-flow, appreciation should bring another $22-33k of illquidate gains plus increases in rent. Based on the 4% rule (which may or may not be appropriate for your age), the RE is outperforming a typical $900 60/40 AA. On the other hand, you have a part-time job managing the units and your assets might be concentrated in one city. So you demand a solid premium.

A property manager would certainly lower your workload, but (1) they're expensive and (2) you have to stay on top of them. They would probably cost you $7k~10k/yr (though this is tax deductible).
- Keep in mind that if the investor sells all the properties, there will be capital gains taxes on about $600k of the sale.
Because you have multiple units, you can decompress the sells to ~1 per year and minimize the total tax burden. At an average market value of $110k each with ~$32k basis, the tax burden shouldn't be too bad. Every time a tenant turns over, do the math if you should sell that unit.

I think you should diversify at least a few units and it will take a long time to efficiently devest.

Topic Author
teelainen
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by teelainen » Mon Apr 15, 2019 2:00 pm

FelixTheCat wrote:
Mon Apr 15, 2019 1:00 pm
teelainen wrote:
Mon Apr 15, 2019 12:55 pm
- This investor is tired of being a landlord, tired of dealing with tenants, toilets, rent collecting, filling vacancies, and all the tenant drama.
I would hire a property manager.
No, the investor doesn't want to "manage" the property manager. It takes a lot of time and skill to make sure the property manager is doing their job. Also, it is very hard to find a good property manager. Lastly, property managers are not cheap (even the bad ones).

Jimmy21
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Jimmy21 » Mon Apr 15, 2019 2:02 pm

depressed wrote:
Mon Apr 15, 2019 1:08 pm
I may be wrong, but isn't the $18,000/year depreciation only a temporary tax break? If you sell the properties, all that depreciation shows up as some kind of income on your tax return (unless you die and your heirs sell with a stepped-up basis)


Im curious to hear mkes about this. I have a rental that ive debated selling. My mom also has a rental shea debated selling. It could also become part of her estate and my inheritance. We were talking about the tax situation on her rental about this very topic just the other day

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teelainen
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by teelainen » Mon Apr 15, 2019 2:05 pm

depressed wrote:
Mon Apr 15, 2019 1:08 pm
I may be wrong, but isn't the $18,000/year depreciation only a temporary tax break? If you sell the properties, all that depreciation shows up as some kind of income on your tax return (unless you die and your heirs sell with a stepped-up basis). Does your $900,000 net sales take into account the tax on that recovered depreciation?
You are correct. So that will be another $50k-$60k in taxes. So instead of $900k, this investor will only have about $840,000 after everything is sold and all the taxes are paid.
depressed wrote:
Mon Apr 15, 2019 1:08 pm
Also, I would think that the $40,000 to $50,000 / year income has to be partly considered income from your 5 to 10 hours of labor, rather than a complete investment return on your $900,000 assets. So, even if you sell the property and invest the resulting money for less annual income, that might not be too bad when you consider that you're tired of doing that 5 to 10 hours of work per week.
Very good point. Really appreciate the insight.

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SevenBridgesRoad
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by SevenBridgesRoad » Mon Apr 15, 2019 2:12 pm

Jack FFR1846 wrote:
Mon Apr 15, 2019 1:45 pm
teelainen wrote:
Mon Apr 15, 2019 12:55 pm
bla bla bla bla bla bla
- This investor is tired of being a landlord
bla bla bla bla bla bla
Sell the properties and take jobs you think are fun.
I nominate this for the year's best response to any posted question in 2019. Fine-tuned the Topic Author's story, and called out the noise for what it is. Laser-focused on Topic Author's central problem. Year is young, but best response so far.
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goodenyou
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by goodenyou » Mon Apr 15, 2019 2:20 pm

Find someone in the rental income space that wants to get bigger. Bigger is better to some investors. Make a deal and get out. Any chance you can sell to current tenant(s)?

I just sold commercial property for the same reason. I am enjoying the liquidity. I think building wealth with real estate can involve liquidity cycles.
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trustquestioner
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by trustquestioner » Mon Apr 15, 2019 2:23 pm

1031 into a well located triple net lease.

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8foot7
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by 8foot7 » Mon Apr 15, 2019 2:33 pm

It sounds like these were not ideal rental properties at first blush. Not the worst but certainly not the ones you'd be looking to buy on these numbers, and that's going to affect how easily you can get rid of them. And anyone looking to take 10 properties off your hands is going to want a discount, so the best way to maximize your exit is to pick a property a year and get out of it. I'd start by taking the unit nearest the end of a lease term and jacking the rent 15%. Keep doing that until someone moves out, and then sell that one. Lather, rinse, repeat.

CurlyDave
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by CurlyDave » Mon Apr 15, 2019 2:45 pm

I think you should put on your big boy pants and learn to like the real estate.

1. It is going to be difficult to find a 5-10 hour per week part time job.

2. The price appreciation of the buildings should be viewed as very similar to tax-advantaged savings, except that it is even better. Why? Because when you "withdraw" it it will be taxed as a long-term capital gain instead of as ordinary income.

3. I don't think there is a good investment for the $840k, or so, that you could expect which would combine with a part-time job and return anywhere near the total return you are getting now.

4. Your income from the units should be considered as inflation-adjusted since you can, and should, raise rents with inflation.

The other option is to get a 40-hour job and a property manager.

Me, I would fix toilets 10 hours a week in preference to putting up with a nitwit boss 40 hours...

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unclescrooge
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by unclescrooge » Mon Apr 15, 2019 2:47 pm

teelainen wrote:
Mon Apr 15, 2019 2:00 pm
FelixTheCat wrote:
Mon Apr 15, 2019 1:00 pm
teelainen wrote:
Mon Apr 15, 2019 12:55 pm
- This investor is tired of being a landlord, tired of dealing with tenants, toilets, rent collecting, filling vacancies, and all the tenant drama.
I would hire a property manager.
No, the investor doesn't want to "manage" the property manager. It takes a lot of time and skill to make sure the property manager is doing their job. Also, it is very hard to find a good property manager. Lastly, property managers are not cheap (even the bad ones).
If you're managing 10 properties, you already know how to manage 1 property manager.

The biggest drawback for rentals is that you're locked into real estate for the long term.

Either you sell and pay taxes, or you do a 1031 exchange.

There is also something called a section 521 or 527 exchange (never done one so I didn't exactly recall). Hard to find this sorts of deals though, but you use the equity in your property as a payment into a partnership.

But you need to be part of a much bigger property to be totally hands off.

riverguy
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by riverguy » Mon Apr 15, 2019 3:36 pm

4-5% cap rate without a property manager is pretty terrible. With that low of expected appreciation, I think you would have a hard time finding a buyer for them at that price. An investment mortgage on those is going to be higher than that cap rate, aka leverage actually hurts in this case.

You need to either raise rents dramatically or realign your price expectations if selling to an investor or sell to owner occupants who will pay more than an investor. You don't have to sell all at once in a 1031, but you do have to reinvest into real property, so maybe you find yourself in the same situation, or not since there are a lot of real property options out there.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Every things free » Mon Apr 15, 2019 3:38 pm

Somewhat similar situation here.
I've sold 9 single family rental houses in the last 24 months.
Why? To reduce stress and maintain personal health. I'm striving for simplicity in all my affairs. When I was younger it didn't matter.
It does now.

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celia
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by celia » Mon Apr 15, 2019 4:00 pm

OP, Managing and repairing these properties currently **IS** your job and you can do it in less than 10 hours a week. Pretty good, I would say as a job or an investment.

What do you like about this job?
What DON’T you like about this job?
What aspects are neutral for you?

If you can make the separation here, why not pay someone else for the part you don’t like to do? Then if you can streamline the parts you do enjoy, maybe you’ll even get more properties and do the fun part on them too.

Note that if all the properties are in the same town, that can be risky when it comes to natural disasters. If a disaster takes out one property, it could take out all of them too.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Hulu » Mon Apr 15, 2019 5:03 pm

What would your back up plan be? If it's not significantly better than your current setup maybe don't change. And perhaps breakdown what you don't like about the job and outsource it. Property managers vary in greatly skill and stability. If you can find a 7 out of 10 that's really good. I found experience with interviewing and interviewing to be helpful. There's a learning curve though...it's worth it when you find a PM that saves you in repairs (bc they manage so many units) what you pay in management fees.

You also seem to have a dream job in terms of hours and hourly pay. Just perhaps shed the things you don't like.

If you really want out perhaps I'll buy your portfolio :)

illumination
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by illumination » Mon Apr 15, 2019 5:29 pm

Are you adding in the appreciation you listed when you say you make $40k-$50k per year? If not, that's closer to $80k a year you're making on the property.

I would agree that what you are making for managing that many properties is something most people would not want to fool with. I'm also astonished you only work 10 hours a week managing 10 properties if you do everything including the book keeping.

But hypothetically, if you had this in the S&P 500, $1.1 million would have generated north of 6 figures per year with zero work if we're going off the past decade. It could also keep appreciating without feeling like you need to cash out and pay taxes, and you could also find easy full time employment that would make the same as your rental properties generate.

I dabbled with rental real estate and did well, but it was a source of headaches as it was a side gig. If it was a full time job, it would not have bothered me. Almost every single person I know that did a rental as a side income hated it and couldn't wait to get rid of it.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by EdNorton » Mon Apr 15, 2019 6:01 pm

I had one rental property, which we lived in for 10 years before we upgraded. Bot it for $35k, sold for $65k, after about 20 years as a rental. The first 7 years, we had wonderful tenants, the next 7 years, we had o'k tenants, the last 6 years, they were terrible. So happy to sell. I would not do it again.
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Scrapr
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Scrapr » Mon Apr 15, 2019 6:13 pm

teelainen wrote:
Mon Apr 15, 2019 2:05 pm
depressed wrote:
Mon Apr 15, 2019 1:08 pm
I may be wrong, but isn't the $18,000/year depreciation only a temporary tax break? If you sell the properties, all that depreciation shows up as some kind of income on your tax return (unless you die and your heirs sell with a stepped-up basis). Does your $900,000 net sales take into account the tax on that recovered depreciation?
You are correct. So that will be another $50k-$60k in taxes. So instead of $900k, this investor will only have about $840,000 after everything is sold and all the taxes are paid.
depressed wrote:
Mon Apr 15, 2019 1:08 pm
Also, I would think that the $40,000 to $50,000 / year income has to be partly considered income from your 5 to 10 hours of labor, rather than a complete investment return on your $900,000 assets. So, even if you sell the property and invest the resulting money for less annual income, that might not be too bad when you consider that you're tired of doing that 5 to 10 hours of work per week.
Very good point. Really appreciate the insight.
When we sold a duplex about 5 years ago the depreciation recapture pushed us into AMT. So maybe even lower than $850k? Maybe spend some time with a CPA to come up with a plan?
Last edited by Scrapr on Mon Apr 15, 2019 6:28 pm, edited 1 time in total.

lostdog
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by lostdog » Mon Apr 15, 2019 6:14 pm

Sell the properties, pay the taxes and sem-retire. Get a part time job you really enjoy.
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Leemiller
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Leemiller » Mon Apr 15, 2019 6:25 pm

trustquestioner wrote:
Mon Apr 15, 2019 2:23 pm
1031 into a well located triple net lease.
Do you invest in these yourself? If so, I’d be interested in your experiences.

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gmaynardkrebs
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by gmaynardkrebs » Mon Apr 15, 2019 6:39 pm

You can really buy sfd houses for $110k?
I've been living in DC too long. :)

DonIce
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by DonIce » Mon Apr 15, 2019 7:26 pm

lostdog wrote:
Mon Apr 15, 2019 6:14 pm
Sell the properties, pay the taxes and sem-retire. Get a part time job you really enjoy.
What are all these highly enjoyable part time jobs everyone keeps talking about on these forums? I just don't see it. Most jobs that have meaningful work that I ever hear about are full time.

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Wiggums
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Wiggums » Mon Apr 15, 2019 7:33 pm

DonIce wrote:
Mon Apr 15, 2019 7:26 pm
lostdog wrote:
Mon Apr 15, 2019 6:14 pm
Sell the properties, pay the taxes and sem-retire. Get a part time job you really enjoy.
What are all these highly enjoyable part time jobs everyone keeps talking about on these forums? I just don't see it. Most jobs that have meaningful work that I ever hear about are full time.
Not sure, but now I’m curious. My employee did not allow part time employees.

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AerialWombat
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by AerialWombat » Mon Apr 15, 2019 7:42 pm

Dude, just hire a property manager.

I also have 1.1 million in property (but not free/clear). Property managers all around. I just collect a check every month.
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by bhsince87 » Mon Apr 15, 2019 7:53 pm

DonIce wrote:
Mon Apr 15, 2019 7:26 pm
lostdog wrote:
Mon Apr 15, 2019 6:14 pm
Sell the properties, pay the taxes and sem-retire. Get a part time job you really enjoy.
What are all these highly enjoyable part time jobs everyone keeps talking about on these forums? I just don't see it. Most jobs that have meaningful work that I ever hear about are full time.
I've been looking for one for 2-3 years. No luck finding it yet.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

dknightd
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by dknightd » Mon Apr 15, 2019 7:54 pm

My sister and I go back and forth on this.
She has made good money being a landlord. It was essentially her "job".
Now her husband has decided to retire from his regular job. So will help her out with the rentals.
So really neither of them has really "retired". I can't blame them. They are making good money doing very little.
I'm lazy, so I would sell. But I suspect they like doing it. Sort of a hobby that pays. Their choice, not mine.
And in the end it is your choice ;)

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by bhsince87 » Mon Apr 15, 2019 7:55 pm

gmaynardkrebs wrote:
Mon Apr 15, 2019 6:39 pm
You can really buy sfd houses for $110k?
I've been living in DC too long. :)
I live about an hour and a half drive from Dulles.

Houses like this are available all over the place.

They're all old, though.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Sandtrap » Mon Apr 15, 2019 8:07 pm

Sell all of your properties and stop being a landlord if you are tired of being a landlord.
That includes hiring a management company, which will eat into your profits, and you are still a landlord, though delegated.
You do not have to do it all at once. Take your lowest earning properties and sell them first.
You can also do things incrementally.
Do a 1031 exchange on a good deal on a 4 plex or 6 plex near you that is easy to manage than seperate SFH rentals.
And cash out the rest.

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Still there. Smalley.
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bikechuck
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by bikechuck » Mon Apr 15, 2019 8:08 pm

Most of my friends that have been landlords eventually burned out and were very happy when they sold their properties.

I felt fortunate last year to earn 4.7% on my investment in TIAA Real Estate.I know that I will not get that return each and every year but it is a passive investment that takes zero hours of work per week.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by david99 » Mon Apr 15, 2019 8:18 pm

AerialWombat wrote:
Mon Apr 15, 2019 7:42 pm
Dude, just hire a property manager.

I also have 1.1 million in property (but not free/clear). Property managers all around. I just collect a check every month.
It's not so easy to hire a good property manager. Some managers are really bad and will put any tenant that they can get their hands on into the apartment. No one is going to take such good care of the property as the owner. I bought a property that was run by a property manager and every one of the tenants was bad. I sold my properties and I'm glad to be out of the business.

I wouldn't hire a property manager -- I would sell the properties and try to find a good 9-5 job. Owning property can be a 24/7 job.

pkjr
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by pkjr » Mon Apr 15, 2019 8:24 pm

If you are in Florida, close to either Orlando or Sarasota, and you are ok to do installment sale , I will take those off your hands and provide you with nice income.

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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Sandtrap » Mon Apr 15, 2019 8:24 pm

david99 wrote:
Mon Apr 15, 2019 8:18 pm
AerialWombat wrote:
Mon Apr 15, 2019 7:42 pm
Dude, just hire a property manager.

I also have 1.1 million in property (but not free/clear). Property managers all around. I just collect a check every month.
It's not so easy to hire a good property manager. Some managers are really bad and will put any tenant that they can get their hands on into the apartment. No one is going to take such good care of the property as the owner. I bought a property that was run by a property manager and every one of the tenants was bad. I sold my properties and I'm glad to be out of the business.

I wouldn't hire a property manager -- I would sell the properties and try to find a good 9-5 job. Owning property can be a 24/7 job.
True.
YMMV (some are lucky)
Resident Managers
Property Managers
Management Companies
Realtor/Rental Agents
etc.
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dknightd
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by dknightd » Mon Apr 15, 2019 8:35 pm

If all you have is $1.1M in depreciated real estate. It could be enough, or not. It depends on how much you like to spend

tampaite
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by tampaite » Mon Apr 15, 2019 8:36 pm

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 7:37 am, edited 1 time in total.

Saving$
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by Saving$ » Mon Apr 15, 2019 8:42 pm

trustquestioner wrote:
Mon Apr 15, 2019 2:23 pm
1031 into a well located triple net lease.
This has the advantage of avoiding the cap gains tax and the 25% recapture tax, as well as the PITA residential tenants.
The downside is all the eggs are then in one basket, and you may get a PITA commercial tenant.

What other investments does the investor have? If real estate is 10% of the entire portfolio, the single tenant may not be so bad. If real estate is 80% of the portfolio, this may be too many eggs in a single basket.

Also consider the suggestion of selling these off one at a time over 10+ years. You want to attempt to structure it so you stay in the 15% cap gains rate, and don't go to the 20%. Selling off one per year will keep your income under $434k in any particular year, so you don't trigger the 20% cap gains rate (if you sell all at once, you will trigger this). Initially, you will be well into the 15%, but if your taxable income drops, remember the cap gains rate is 0% if your taxable income is $39,375 or below. Also, if your investment income exceeds $200 or $250k, you might be subject to an additional 3.8% tax.

ALSO - HEAVILY CONSIDER owner financing. You should be able to get 1% over market for an owner second, so 4%+1% would be +/-5% in the current environment. This is usually on about 15% of the sales price. This will enable a savvy buyer to avoid PMI, at similar monthly outlay, but buyers money is going to pay down their mortgage instead of PMI. Concurrently, seller gets a nice bump in fixed returns. If you can do this with each property risk is diversified and seems much lower risk than putting all your eggs in a single commercial triple net lease basket.
Last edited by Saving$ on Mon Apr 15, 2019 10:00 pm, edited 2 times in total.

dknightd
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by dknightd » Mon Apr 15, 2019 8:52 pm

tampaite wrote:
Mon Apr 15, 2019 8:36 pm
teelainen wrote:
Mon Apr 15, 2019 12:55 pm
Scenario:
- Individual investor owns 10 single-family rental properties. The total market value of all the properties is about $1.1 million.

- The investor depends on this $40k-$50k per year to pay for living expenses, because the investor currently doesn't have a full-time job.

Remember that the investor will only have about $900k in cash after everything is sold and all the taxes are paid. Thanks.
Can investor generate $40-$50k from $900k - if so, sell!
If investor was 90, no problem. If investor is 30, could be a problem

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AerialWombat
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by AerialWombat » Mon Apr 15, 2019 9:05 pm

david99 wrote:
Mon Apr 15, 2019 8:18 pm
AerialWombat wrote:
Mon Apr 15, 2019 7:42 pm
Dude, just hire a property manager.

I also have 1.1 million in property (but not free/clear). Property managers all around. I just collect a check every month.
It's not so easy to hire a good property manager. Some managers are really bad and will put any tenant that they can get their hands on into the apartment. No one is going to take such good care of the property as the owner. I bought a property that was run by a property manager and every one of the tenants was bad. I sold my properties and I'm glad to be out of the business.

I wouldn't hire a property manager -- I would sell the properties and try to find a good 9-5 job. Owning property can be a 24/7 job.
Yes, screening a property manager takes work.

I own property in multiple markets. Each market has good and bad property managers. Sometimes you have to switch.

Yes, managing your manager is a bit of work. A few hours per month, on average.

But it beats managing them myself.

And it definitely beats a 9-5 job.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

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ohboy!
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by ohboy! » Mon Apr 15, 2019 9:05 pm

I had 3 at one point. Happy to have sold. Too much headache. You can 1031 into a Delaware Statutory Trust. I just ate the taxes and moved on. Property manager still includes having a property. Houses are a hassle. Index funds much easier.

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knpstr
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by knpstr » Mon Apr 15, 2019 9:13 pm

$900,000 will give you $45,000/yr for 20 years. When do you plan on dying?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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knpstr
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by knpstr » Mon Apr 15, 2019 9:23 pm

david99 wrote:
Mon Apr 15, 2019 8:18 pm
I wouldn't hire a property manager -- I would sell the properties and try to find a good 9-5 job. Owning property can be a 24/7 job.
According to this poster, it is more like ~7.5 hour per week job, not 168 hour per week job.

Work 40 hours a week for $45,000/yr --- or work 7.5 hours per week for $45,000/yr... hmmm which is better?

Not to mention, if their property appreciates at 2.5%/yr that is another $27,500+/yr so ~$72,500+/yr for 7.5 hours of work a week when you include that.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

renue74
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by renue74 » Mon Apr 15, 2019 10:21 pm

I own 9 rental properties + 1 full time airbnb property and net about $100K/year in rental income. I self manage....except for 2 recent buys I just bought.

I've always self managed...for 7 years. I don't mind dealing with the riff-raff. My plan is to do it for 10 more years and sell off then.

I actually just bought a 3 property deal from an investor who went into a 1031 exchange. I'm pretty sure you have to have one transaction if you want to exchange into the total amount.

My suggestions

1.) Look at your most difficult properties. You know the ones, that sorta kinda suck and has never really had decent tenants......and hand those off to a property manager. Just do it for a trial. It'll cost you 10%, but you won't get the calls.

2.) How to find a good property manager? Look at local real estate agents who also have rental property. See who they use for property managers. Ask around.

I have landlord friends who have cycled out. After 20 years, they hated it. They tried to sell me package deals, but they wanted retail prices for properties that obviously had deferred maintenance and low paying rents. They eventually sold their properties off...I think it took about 2 years for each one to sell about 20 properties each.

If you do decide to sell....sell over a few years to reduce your tax burden.

But, I would suggest the property manager route first. But, you need to make sure it's profitable. There's no reason to have a rental property that doesn't cash flow well.

Plan the work, work the plan.

WhyNotUs
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by WhyNotUs » Mon Apr 15, 2019 11:13 pm

Questions:
1. Is $40k-$50k net profit + $18k in depreciation per year a good "return" on $1.1 million worth of assets? Or can this investor make the same amount of money (with less work) buying municipal bonds?
First, I would be looking at current return based on your basis ($500k). Your cap rate and appreciation have been very nice. A good investment. Second, if you end up with $900k and can get into munis that yield 3% (a little over current market), then you would generate about $27k in income.
2. Besides municipal bonds, is there anything else this investor can buy to safely get $40k-$50k per year?
5% yield on $900k would be $45k, those returns in a safe investment are not in my awareness. If you find it, let me know :D
3. The investor has considered doing a 1031 exchange in order to trade the 10 properties for something else (and defer the taxes), but it is hard to find a buyer who is willing to buy all 10 properties at once and still pay full market value for all of them.What have you tried so far? my guess is that you would attract people looking for a low ball offer. Not sure how 1031 solves your desire to not be a landlord?
4. Any other tips or advice for this investor?
Congratulations, you have made some wise investments.Sounds like you have a quality of life decision to make. Dealing with rentals and tenants can be easy until it is not. Don't be afraid to make a change, you did good when you started the RE investment idea so it is probably not the only good one that you will ever have. At the same time, the level of income and appreciation that you have enjoyed from that investment with the level of effort required is not that common.
I own the next hot stock- VTSAX

BanquetBeer
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Re: $1.1 million rental portfolio, but tired of being a landlord

Post by BanquetBeer » Tue Apr 16, 2019 8:07 am

knpstr wrote:
Mon Apr 15, 2019 9:23 pm
Work 40 hours a week for $45,000/yr --- or work 7.5 hours per week for $45,000/yr... hmmm which is better?

Not to mention, if their property appreciates at 2.5%/yr that is another $27,500+/yr so ~$72,500+/yr for 7.5 hours of work a week when you include that.
I feel like there is some misunderstanding here.

Rental: $1.1mil investment + 10h/wk = $45k (+ $27k appreciation)

If you invest in stocks you would get ~900*9%=81k on average with almost no work but those returns are not reliable.

If you use 3.5% SWR that’s 32k with no work vs 45k with 500h/yr work (because both assets appreciate, although stocks do tend to appreciate at a higher rate)

So if they worked full time for $45k they would still have +32k from stocks and earn $77k/yr.

One could find part time or temp work to get (45-32=13k) per year or one could work full time to save up 13/0.035=$370k more (assuming you use this SWR based on an age appropriate evaluation)

That could be 7 years earning about 50k or 5.5 years earning about 75k

Would you rather front load work/savings or spread it out is out? That’s a personal choice.

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