Investor · Daytona/Ormond Beach Fl, Charleston/Summerville SC · Member since 2017 · 156 posts · 73 votes
I have had my first rental too long. I admit I have this thing for it: 1000' to a great beach, my dream retirement home, a super long term tenant, a super appreciation. But from a return on equity it is well out of balance. In terms of the 1% rule, it is now 0.3%. In terms of depreciation I've used 22 of the 27.5 years. How about some ideas for a good exit strategy?
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Fixing ROE is easy, cash out refi. Are you saying you’re making money @ 0.3% rule? If so, great, another nail in the 1% “rule”. (I don’t think I have a 1% property in my portfolio that cashflows like crazy and has appreciated 300% in the last 7-10 years. It just isn’t important.)
If you’re not making money, obviously sell. if you are, you don’t sell unless you’re cash-poor and can’t qualify for a cash out refi. Or you are super desperate to trade a good stress free performing investment for the “opportunity” to try to make a better investment, that hopefully will perform better and yet not make your life worse.
I get it, successfully real estate investing is SUPER boring. I’ve been desperate to sell any one of my properties so I could do something, anything. But as I’ve posted before, my worst property cashflows a little over $1,000/mo and I spend maybe 2 hours a year dealing with it. My tenants stay 4-12 (so far) years and only reach out when an appliance breaks. You get to the point where dealing with a PITA tenant or property just isn’t worth a couple hundred more dollars per month.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Fixing ROE is easy, cash out refi. Are you saying you’re making money @ 0.3% rule? If so, great, another nail in the 1% “rule”. (I don’t think I have a 1% property in my portfolio that cashflows like crazy and has appreciated 300% in the last 7-10 years. It just isn’t important.)
If you’re not making money, obviously sell. if you are, you don’t sell unless you’re cash-poor and can’t qualify for a cash out refi. Or you are super desperate to trade a good stress free performing investment for the “opportunity” to try to make a better investment, that hopefully will perform better and yet not make your life worse.
I get it, successfully real estate investing is SUPER boring. I’ve been desperate to sell any one of my properties so I could do something, anything. But as I’ve posted before, my worst property cashflows a little over $1,000/mo and I spend maybe 2 hours a year dealing with it. My tenants stay 4-12 (so far) years and only reach out when an appliance breaks. You get to the point where dealing with a PITA tenant or property just isn’t worth a couple hundred more dollars per month.
Investor · Milwaukee WI · Member since 2022 · 8 posts · 2 votes
4y
Hey Buddy, have you considered a private investment into a fund as an alternative to a 1031 exchange?
There are a lot of details that need to be worked out, but the general strategy is to sell your property and recognize the gain. Then, in the same taxable year, take the proceeds form the sale of your asset and use them to invest in a passive real estate fund. My companies fund produces passive losses in the first year of your investment between 50-60% of your investment amount. You can then use this passive loss to offset your gain and greatly reduce the tax burden.
This strategy isn't right for everyone, but if you want to stay invested in real estate and want to be passive it could be worth looking into.
Investor · Daytona/Ormond Beach Fl, Charleston/Summerville SC · Member since 2017 · 156 posts · 73 votes
4y
That is a good idea, and I have a couple of LLC syndicated deals that have done that. However the appreciation of FL Beachside homes over the last 22 years with depreciation on top make that exit to expensive. Great to consider for another property perhaps.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
4y
I hear you on the ROE erosion over time but this sounds like a great place. I have a couple like this I'd like to hold onto as legacy property for my heirs. Stepped-up basis for them.
I've had a few (1 a 10-unit) that went from a 2%er to a .5%er. The headaches were getting to be too much so I 1031x'd into some quads closer to home that had a PM already.
But this doesn't sound like what I had. I'd keep it and leverage as needed.
As to our salesman above, I don't think s-t passive losses offset depreciation recapture or l-t cap gain. That would be a tough lesson to learn next April. A mid-year cost seg sounds minimal anyway .
Congrats on a great investment. Good problem to have!