Question on holding rentals long term.

6 Replies

I’ve been a long time lurker but my wife is finally on board to allow me to pursue what I’ve wanted for some time now. Clearing out a little bad debt with my OT right now and then it’s on to property number 1. Now on to my question to those of you far more knowledgeable than myself. I’ve done what I consider required reading and I keep all these books around personally indexed as references. So far I haven’t came across anyone that holds rentals forever. I understand the equity chase and investing in several properties from the one. However I have no intention of being warren buffet. I love the idea of becoming free with my time for my wife kids and family with the passive income making us comfortable and being able to enjoy life to it’s fullest, but I’m sure at some point I’d like to sit back and just let properties pay for themselves so my kids can take them all over when I die creating legacy wealth for my family. That being said I have read horror stories about leaving property to several offspring and/or family but I like to think that I’m raising them responsibly and I intend to pass on all my knowledge about it once the time comes. Sorry for the rant and I even went off topic but the actual question is does everyone let rentals just season the 5-7 years and then sell them off, or does anyone intend to eventually let them pay themselves off and take in the income at some point? Early on I’ll do the swapping but later in life I don’t see me hustling as much. Then again I may be wrong about myself in that regard.

Really. Well that’s good to know then. It’s so odd because most of the material has investors dumping properties, short of commercial/apartments, after 5-7 year cycle to avoid maintenance costs that arise. Personally I don’t think I’d mind the maintenance costs because I’ve always been a great saver so I expect myself to continue even with higher amounts of money. In my head it just makes sense to be able to pass on massive amounts of real estate to the next generation and hope they continue to build. To be completely honest another reason I’m not super terrified of the future in this is because I know my inheritance is around 4 million now and growing. I intend to never need that for my business but I’d definitely invest some of it.

@Brian Ripperda , really just kind of depends on your strategy. If you hold properties long term you will have to put money into them to upgrade and for CapEx. If you buy right then that is not a problem, but most people never consider those expenses when they buy for the long term and get crushed when an HVAC goes out or the roof fails. If you are rolling properties every 5-7 years you have to have pretty good deal flow and you still have to factor in transaction costs and taxes.

No matter how you raise your kids they may not have any interest in managing a large portfolio of rentals. It can be a real PITA and is not passive by any stretch of the imagination. There are lots of ways around that if you come to that realization though. For example, you could sell your properties individually or as a portfolio using seller financing and then just sit back and let the money roll in without the tenants, termites, and toilets. That is often an effective strategy to mitigate the tax hit as well. Or have it set up to sell everything after you die, then your heirs won't have to pay taxes on any of it. There's actually a lot of variables in that last statement that I didn't take into account, but you get the idea.

Thanks Edward. I’m at the beginning but feel it’s also a good idea to think about the end as well. I appreciate the insights and definitely gave me more to think about. The kiddos part I’ve read about a lot and agree that it seems it can be a PITA but once they are older and express their intentions I can plan accordingly. Seems like it would be such a shame to acquire real estate just to let it go in the end. Granted I don’t know all the rules of passing it on but I’m sure there is taxes like crazy or maybe it just falls under the 4% estate tax, who knows. Hopefully I have a long time to figure it out. Thanks again.

The issue with the kids is, while YOU may have a dream of managing properties, and filing taxes on rental properties and owning 20 or 30 refrigerators and negotiating contracts, that might not be the childrens' dreams. So you leave your prized possession of property to the children, and they don't give two hoots about it, and will let it go for pennies!

I'd say do this investing thing for yourself and have a liquidation plan in place for the family in case they don't share your passion.

That definitely a valid point. That’s why I feel the importance of communication with them when they are of age. See what their intentions are and what they want to do. I’d be fine liquidating if that’s what they wanted. My family has always been quite clear about death plans in previous generations and I don’t see me being any different. Hell im not even started in this yet and my wife and kids already know I’m worth more dead than alive even now. LOL