All Forum Posts by: Todd N.

No, you cannot. 

If you want to defer capital gain, then you would not be able to use the proceeds and roll into another property via a 1031 exchange. 

You can also explore OPZ investing if you want to defer the taxes and more time for planning. 

 Bummer, I will refi the property and then pay off the debt. Thanks for the info

It’s nice to be debt free. However, selling the property to pay off the notes may not make sense. I’m going to assume the mortgages you are going to pay off are not at the start of amortization, but towards the end. If so, you are paying off “free money” and will give up a property that will eventually be paid off. Also, if you plan on taking out other loans it makes less sense. Also, what is the cost of capital gains and Dep recapture? Maybe a 1031 would be a better option into a vacation property and convert that into a primary property to avoid the taxes?

First off there are no "Cons" to being debt free.

Secondly, like you said we are at the top of the market so now is the time to sell.   

You question should be which property to sell.

I would look at selling the property with the most issues or worst prospects for future growth.

Not all properties are equal.  Things like distance, Age of Structure, Appliances, Flooring, HVAC, Roof, etc. are considerations. 

Also, you seem to think this is a zero sum game.  I say it isn't.  Real Estate is cyclical.  There will be a down cycle in the future so think about the possibilities of when others who get in over their head have to sell in the next market cycle.

The thing about BP is it wasn't around in the 70's,80's, 90's so most of the people here (Not ALL so don't beat me up) haven't experienced the wild rides and don't have a true long term perspective on the market.

The best place to be is in a position to take advantage of the next market cycle and pick up more then than to try to hold on to what you have now and service debt.

BTW I have 9 properties and I'm looking at doing the same thing.  4 are paid off and I'm looking at selling 1 or 2 to pay off the other debt.  I'm still working but being threatened with termination because I won't participate in the COVID scam, so I'm stuck on the next move until that plays out.  My net income from rentals basically replaces my salary so I can walk away from my job if need be.  I've been using all the rental income to pay down the loans.  

The wild card for me is I'm thinking of building a duplex which would allow me to get rid of my lowest potential properties and transform that capital into my highest performing properties.

I have almost a remaining 300K in tax losses from 2008 that I can basically sell property tax free and not have to do a 1031 into an existing property which gives me some options.

Again, being debt free gives you options.

GLTA


Sam, 

I agree, times are different and there may be a cycle down in the future. Sorry about your problems with the Ronascam! My Tenants are smart and all paid, there is no place for them to go if they had to move, rent is so high and places are scarce. I have a commercial property that I can sell but will look into refi on Monday, other option to keep it. Sounds like you have a good plan in place also. Cheers!


 

@Todd Nelson I guess what I’m asking is how long would it take you to pay them off if you put all excess money to them? How much are we talking?

I seriously question the net worth of many of the responders.  

First, I will say that if debt causes you to worry or lose sleep, then it is not worth it and get rid of the debt.   Worry free, sound sleep is worth a lot. 

I am going to assume the non commercial loans are conventional fixed rate Fannie/Freddie loans. 

now to some reality about your finance situation:

• There is virtually no cheaper money than f/F loans.  It is simple to achieve higher returns than the F/F loans. How sure am I? I would borrow from you at higher than F/f loan and show you lending to me should be extremely safe.  
  the recent F/F loans are near all time low.  Because the fed has already announced intent to raise, we can predict with near certainty the rates are going to rise. 
  the current inflation is higher than it has been in decades.  Fixed rate loans are a hedge against inflation.  
  cash flow is taxed as income.  You know why/how bezos, musk, buffet pay little in taxes?   It is because they do not have income.  They can buy whatever they want on credit.  Note rent used to pay down your debt is not income and therefore does not result in income taxes.  
  Leverage/appreciation. You indicate your properties are in Oregon and CA.  I suspect they have had huge appreciation.  A RE that has equity of 25% increases in value 25% equates to a 100% return from the appreciation.  The same RE owned with no leverage (no debt) achieves 25% return from the appreciation.  Leverage can be an incredible wealth builder.
  
• Selling a property will have the cost associated with selling, but it will also remove a property from your portfolio.  I only remove RE from my portfolio if I can produce better return.  Paying off F/F debt is unlikely to qualify. 

I try to minimize my cash flow in part because I like to minimize my taxes.  I try to maximize my leverage and have as much debt as Fannie/Freddie will permit because I like to maximize my return. 

This situation does not stress me or cause me to lose any sleep.  I can point to numerous benefits of having the F/f loans, but if they stress you and effect your quality of life then it does not matter.  You need to make the decision that provides you the highest quality of life for you.  

Good luck

Have you considered refinancing and using the excess to pay off the properties.

That way you don’t have to get rid of a property. 

While it’s nice to have them all paid off, i personally don’t see the point of having that much equity just sit there and not creating more money for you.

Such as using that to purchase another property, that will help pay down the others, potentially gain more equity and another tax break.

Sounds like you’re pretty conservative, as am i, and since you’re not leveraging yourself out to your gills, i would say that’s a pretty prudent approach.

either direction, bravos on your accomplishments on getting out the rat race!

One question I have is why couldn’t you take the cash flow now and more aggressively pay off your properties? If you can take one property and pay the others off it seems like these are very high value, lower leverage properties. If you dumped any available money into the loans, how long would it take you to pay them off?

Personally, I don’t mind having loans because of the inflation and tax write offs, especially when my loans are 3-4% and inflation is over 6%

@Todd N.

That is a great choice to have. If having no debt helps you sleep better at night then why not. If you're getting 100k and retiring in 5 years, assuming you are still working and not really tapping into that cashflow, then couldn't you just take that 500k and put 25% down on 1 or multiple property in the future if you chose to? Sure. Bottom line is you still would have the freedom to buy more properties or get back in debt if you chose to. Good luck buddy!