Welp that's it, I'm selling out

[Jeremy Horton]

Well, that's it for residential SFH LTR real estate. I officially made the decision today to move on...

I listed two properties today. Reached out to the tenants of another one and they are interested in purchasing. And I'll list the other 2 here in the next month or so. That will be my last 5 properties. 

Why you may ask? 

I don't work in the real estate industry (not a REP) so (1) I can't take the depreciation. So I basically have a bunch of passive losses locked up. Rising insurance and property taxes have (2) dwindled cashflow to the point rents cannot be raised enough to cover the increase in expenses. (3) Labor has gone through the roof making flips even harder (plumbers used to be $85/hr, now they are $145/hr). I live in Louisiana and we (4) don't have the appreciation that a lot of other places have. There are some micro areas that have better appreciation but these are 300k+ houses (aka nothing you can rent for a profit). 

So the 4 ways you make money - cashflow, appreciation, loan paydown and tax deductions have been 75% eliminated. The loan paydown is the only thing left and isn't significant until year 15 (really year 20). In my opinion that money can be better allocated elsewhere for better returns. For example...my rental cashflow is taxed at 37% - whereas I can invest in the stock market and only pay 20% capital gains. And the market has been on an absolute tear the past 3 years (and I see this continuing with AI/robotics/space & satellites). 

Overall rating on my RE investments over the last 5 years...probably a 4/10. My duplex was my first purchase - bought for 104k, put about 15k into it (all in 120k). I'll list for 125k, so break even at best. Fourplex was second purchase - bought at 160k, will list for 185k+ (this one is the only one that really makes sense to keep, it cashflows and was bought at a discount). SFH 1 I paid 182k for (overpaid and got emotional), I'll list it for 198k (will likely take a 15-20k loss). SFH 2 I paid 150k, I'll sell to tenants for 197k or list for 205k (fantastic location, bought off-market, I like this one, make 45-50k). SFH 3 paid 130k back in 2017, probably list at 175k (this was a previous primary residence so no capital gains). I haven't bought anything since 2023 and my stock market gains have vastly outpaced my RE gains.

What would I do differently? I would make fewer BUT better deals. I wouldn't go above 80% ARV in ANY case. I'd learn about creative financing and use less of my own money (use more OPM). Then start a direct mail/texting (lead) campaign, funnel leads, make cold calls and ideally make a few great deals. I would ONLY buy in fantastic LOCATIONS. The recurring theme is PRICE & LOCATION. And focus on MAKING it a deal.

The other thing - GET INVOLVED. When I come back I plan to get involved with local groups. Go to the meet-ups. Check in regularly. Do deals with people etc. Maybe even do a mastermind or something with someone local. It's much easier to do things with a partner (or group) than on your own. 

Now what am I going to do instead?! Develop a business. I bought some land off a major road and am planning to develop. I may do a trailer park depending on what I can pick up for cheap. I would only do real estate at scale (potentially syndicate or partner as well). 

I think it will be a breath of fresh air not worrying about a pipe busting, a roof needing replacement etc. I am a little bummed about selling the "good ones" but that equity will be better allocated elsewhere. 

I apologize for the long post. Any questions/comments/concerns let me know!

[Jay Hinrichs]

nice post.. for someone that has been in the business for 50 years I am often asked how many rentals I have.. and that number is exactly 2  LOL  I did make a run at C and D class in the deep south back post crash and bought about 300 of them with a few partners that lasted oh 18 months or so and I sold out.. to me these days its about right on's not write offs even though I can take the depreciation and I do that through a few hand picked syndicators that run their investments tighter than I can..  So for me lending money building houses and just live with the tax burden.