All Forum Posts by: Andy Nanneman

I have a older single family home.  I purchased it as a starter home and lived in it for 8 years.   I moved out in 2019 have been a land lord since that time.  It has great cash flow as a rental, easily 1% value/month in rent.   However, I have realized I do not like being a landlord.  I have a demanding career, family life, and hobbies that do not include home improvement.  As much as like good investments and diversification from only stock, bond investing I know I would be happier without this property.   So I came to peace with selling.   Now the question is:

*Post for sale by owner as is and hope other investors contact me that would be interested in doing the renovations them selves?

*Do rennovations then sell?  By owner or through and agent?

The floors need work, it has older hardwood flooring that has several soft spots.  There is no sub-floor and due to a leak they were exposed to a wet crawl space.  If I tear out the floors I then decide whether to do a sub-floor then new lvp.  If I go that route it may be hard to match the trim elevations.

The house also needs touch up paint.  The shingles are pretty old but there are no active leaks.  

Any thoughts or suggestions?  

The area has come a long ways since 2011 and looking at the plans it looks like things will continue.  I am cautiously optimistic that this gentrification can move as far north as 12th street.  Hopefully it will raise rental rates and property values of the well kept older homes in the area. 

I have lived in the area (walk and/or bike almost daily) and have never felt unsafe but you do notice as you head north past 16th street or so things start looking a bit more rough around the edges.  

Originally posted by @Ashish Acharya:

Originally posted by @Andy Nanneman:

I have a paid off home I have lived in since 2011. I recently moved to another residence. I would like to turn the older home into a rental property (if the numbers make sense). It is in an area that is experiencing considerable development, and I believe the home will be worth more in the 5-10 years. However, it is an older home (~120) and needs some renovations. So here are the factors I am considering. Please let me know if I am making an error or missing an important factor.

• Capital Gains Exemption: must have lived in the house for 2 of the last 5 years. So if I sell by 9/22 I can avoid capital gains. If the tax savings is considerable relative to the annual rent income and appreciation rate it would make more sense to try and fix the house up a bit and sell.

• Renovations prior to rent. Before the house is ready for the rental market it likely needs some renovations. If these get expensive I understand you can depreciate it over the years of renting. However, would that void the possibility of the capital gains exemption for primary residence?

• Repairs can be deducted from the annual tax year. So if I spend x thousands making repairs I can avoid paying taxes on x thousands of rental income. That means rushing to make repairs and getting a tenant in for November or December might not be worth the rush. Can I spend money now and deduct the expenses from the 2020 tax year? Or do I need to wait until after January 1?

 However, would that void the possibility of the capital gains exemption for primary residence?

- It’s not going to void any thing just as making renovation to you primary residence doesn’t void sec 121. 

Can I spend money now and deduct the expenses from the 2020 tax year? Or do I need to wait until after January 1?

Repairs done before renting is personal in nature. However, if you do some improvements, those gets added to the basis and will be depreciated. The tax implication of improvements is same before or after renting. You get to depreciate either way. 

Thanks! Because repairs prior to renting are non deductible and renovations are depreciated over years it seems there is no timing issue with spending money in the final months of 2019 when I might get little to no rental income until 2020.  Thanks for the info.  

Originally posted by @Wayne Brooks:

Both repairs and expenses Before it is in service/ready for a rental are both capitalized/depreciated.  After it is rented, repairs are deductible, improvements get capitalized.

As for renting and depreciating it just shy of 3 years before selling....no this does not affect your cap gains exemption, but of course you’ll have taxes for the depreciation recapture when you sell.

Thanks for the info! I read up a bit on renovations and how they are
capitalized. It looks to be as simple as I spend 20k on a reno it adds
20k to my cost basis? If that is the case what happens if you do some
work yourself. For instance it may cost 20k for a contractor to do a
project but the home owner 10k in materials and 50 hours? I'm just
throwing out numbers to clarify my question. Thanks again. 

I have a paid off home I have lived in since 2011. I recently moved to another residence. I would like to turn the older home into a rental property (if the numbers make sense). It is in an area that is experiencing considerable development, and I believe the home will be worth more in the 5-10 years. However, it is an older home (~120) and needs some renovations. So here are the factors I am considering. Please let me know if I am making an error or missing an important factor.

• Capital Gains Exemption: must have lived in the house for 2 of the last 5 years. So if I sell by 9/22 I can avoid capital gains. If the tax savings is considerable relative to the annual rent income and appreciation rate it would make more sense to try and fix the house up a bit and sell.

• Renovations prior to rent. Before the house is ready for the rental market it likely needs some renovations. If these get expensive I understand you can depreciate it over the years of renting. However, would that void the possibility of the capital gains exemption for primary residence?

• Repairs can be deducted from the annual tax year. So if I spend x thousands making repairs I can avoid paying taxes on x thousands of rental income. That means rushing to make repairs and getting a tenant in for November or December might not be worth the rush. Can I spend money now and deduct the expenses from the 2020 tax year? Or do I need to wait until after January 1?

Originally posted by @Jay Hinrichs:

before you turn it into a rental do you have any significant equity from when you purchase it

did you live in it 2 of the last 5 years

if so the entire gain would be tax free..  which is by far the best tax treatment in the US today.. 

talked to your accountant about options.. it maybe better to sell.. if you have a nice gain that your going to take tax free then use that money as down stroke on a rental.

 I have some but don't think it would be substantial.  But that is a good point if I understand you correctly.  If I rent it for the next several years I lose the ability to sell it without paying long term capital gains, correct?  

I have a home paid for in NLR, AR. My neighborhood has been seeing lots of development but I am still on the outskirts. I think in the next 10 years my block has a lot of potential to see considerable development. I don't think if I sold my house I would get what it is worth considering the future development. Because it is paid for and easily exceeds the rule of thumb of charging more than 1% of home value per month ( I should be able to get 600-700 for a house I paid 45k for) I want to try being a landlord. Because I am new to this I have a few questions and I hope this forum is the right place to ask.

House is ~1150 sf, 2 bed 1 bath, new windows, insulation and heat pump.  Very energy efficient and near the Rockwater Village development.

Because I am new at this and we bought another home because my wife and I are expecting our first baby :) I am strongly considering using a property manager (worried about time and attention with the newborn). How does one go about selecting and vetting property managers?

Also I think my house could use some TLC before renting it but don't know what all is necessary for our market. I am sure property managers would make recommendations after we have a contract. But if I wanted to try renting it out on my own is there a consultant type service where I could a knowledge expert walk through my house with me letting me know what upgrades are likely necessary and what would not lead to actual ROI. For instance some of my trim has flaking paint, do I need clean this up all through the house or would a person renting a 1150 sf home for $650 even care? Do I need to do any serious work to the kitchen? How much should I initially ask for rent.

And any other tips for a guy who works 40-45 hours a week and about to have his first baby looking to try being a landlord?

I have a home paid for in NLR, AR.  My neighborhood has been seeing lots of development but I am still on the outskirts.  I think in the next 10 years my block has a lot of potential to see considerable development.  I don't think if I sold my house I would get what it is worth considering the future development.  Because it is paid for and easily exceeds the rule of thumb of charging more than 1% of home value per month ( I should be able to get 600-700 for a house I paid 45k for) I want to try being a landlord.  Because I am new to this I have a few questions and I hope this forum is the right place to ask.

Because I am new at this and we bought another home because my wife and I are expecting our first baby :) I am strongly considering using a property manager.  How does one go about selecting and vetting property managers?  

Also I think my house could use some TLC before renting it but don't know what all is necessary for our market.  I am sure property managers would make recommendations after we have a contract.  But if I wanted to try renting it out on my own is there a consultant type service where I could a knowledge expert walk through my house with me letting me know what upgrades are likely necessary and what would not lead to actual value.  For instance some of my trim has flaking paint.  Do I need clean this up all through the house or would a person renting a 1200 sf home for $650 even care?  Do I need to do any serious work to the kitchen?  How much should I initially ask for rent.

And any other tips for a guy who works 40-45 hours a week and about to have his first baby looking to try becoming a landlord?