Author Topic: Getting out of rentals  (Read 1816 times)

Pookie

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Getting out of rentals
« on: January 31, 2023, 11:01:24 AM »
Sometimes the stress of owning rental properties just feels too much. I am contemplating selling some of them even though I have turned them over to a PM. As someone stated before, even though you have a PM, you still have to pay attention. No one will take care of your properties like you do. And as of this year, I am the sole owner, so there's lots of things I can't do on my own.

A long term goal of mine is to move overseas - Portugal possibly. I've thought about selling a few properties, using that money to fix up the remaining ones as needed and putting the rest into Vanguard. That way, I know the ones I keep will be top notch for a few years as far as siding/roof/windows, etc. Quality over quantity. Bigger isn't always better. I have 15 doors so it's not a lot but enough.

I'd like to keep just a few properties that would cover my living expenses and, hopefully, lower my stress level.

When/if I do sell, my thoughts are to sell everything in one year because of ACA. Just take a big tax hit and ACA hit all at once. I may not qualify after this year but I am not sure since this is my first year that I will file on my own.

Just looking for some input from folks who have sold or even thought about it. I guess it's a good problem to have and I am also a bit overwhelmed being on my own again with the responsibility. Lost a bit of confidence over the years.

Thanks for your thoughts!

Archipelago

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Re: Getting out of rentals
« Reply #1 on: January 31, 2023, 11:18:15 AM »
I've got two properties, 8 units, self-managing remotely from 2 hours each way. I had a PM before, they were solid but didn't quite care for the property & tenants at the level the I care for my own.

I'm still working towards a fire date 10-15 years away and have a ways to go, but I feel burnt out sometimes too. Particularly with handling problem tenants and dealing with more of the 'people problems' aspect of operating rental properties. A lot of it is taking a hard look at my own morals, and it gets mentally exhausting. But on the same token, that's a good thing. Good landlording should push you to be the best landlord you can be. I always try to keep in mind that I'm aiming at the best I can, and that I shouldn't overthink and stress about things that come up. Just deal with things as they come and do your best with that responsibility.

Sounds like it wouldn't hurt selling off a few in your case. Do you have any tenants or know someone that would be interested in buying? You could avoid bringing them to the market and paying extra fees for that (which would offset some of the impending tax bill).

Omy

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Re: Getting out of rentals
« Reply #2 on: January 31, 2023, 11:19:26 AM »
We are thinking about a DST 1031 Exchange for our rentals. You still get income but none of the headaches...and you can keep deferring the gains and depreciation recapture.

PMJL34

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Re: Getting out of rentals
« Reply #3 on: January 31, 2023, 11:48:28 AM »
No advice to give OP, but I certainly empathize with your thoughts. I feel very much the same way after only 9 years of rental real estate.

Yes, the money is great! But I can't wait until the day I no longer need the cashflow and can sell all of them!

I hope someone more qualified on here can suggest a tax friendly exit for you.

Best of luck!

GilesMM

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Re: Getting out of rentals
« Reply #4 on: January 31, 2023, 03:28:03 PM »
Depending on what kind of capital gains you are sitting on, it could be better to sell them slowly over multiple years to minimize your income taxes, rather than selling them all in the same year and being blasted into the highest tax bracket.  If that is not an issue, I would just sell them all at once and be done with it.  Invest the proceeds and move on with your life, care-free!

Pookie

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Re: Getting out of rentals
« Reply #5 on: January 31, 2023, 05:19:30 PM »
Depending on what kind of capital gains you are sitting on, it could be better to sell them slowly over multiple years to minimize your income taxes, rather than selling them all in the same year and being blasted into the highest tax bracket.  If that is not an issue, I would just sell them all at once and be done with it.  Invest the proceeds and move on with your life, care-free!
Yes, the taxes would be a huge issue. I guess the best thing would be to talk to my accountant. If I am pushed over the ACA amount several years, that will add up too.
We are thinking about a DST 1031 Exchange for our rentals. You still get income but none of the headaches...and you can keep deferring the gains and depreciation recapture.
A 1031 exchange would be great, it just seems so complicated. Great option, though.


I've got two properties, 8 units, self-managing remotely from 2 hours each way. I had a PM before, they were solid but didn't quite care for the property & tenants at the level the I care for my own.

I'm still working towards a fire date 10-15 years away and have a ways to go, but I feel burnt out sometimes too. Particularly with handling problem tenants and dealing with more of the 'people problems' aspect of operating rental properties. A lot of it is taking a hard look at my own morals, and it gets mentally exhausting. But on the same token, that's a good thing. Good landlording should push you to be the best landlord you can be. I always try to keep in mind that I'm aiming at the best I can, and that I shouldn't overthink and stress about things that come up. Just deal with things as they come and do your best with that responsibility.

Sounds like it wouldn't hurt selling off a few in your case. Do you have any tenants or know someone that would be interested in buying? You could avoid bringing them to the market and paying extra fees for that (which would offset some of the impending tax bill).
Good luck with your goals to retire with rentals!
I have always tried to be the best. I even felt guilty when I turned them over because I got close to most of them - which is not good, I know - but I treated them as family....for the most part. That might be part of my exhaustion, too! I agree with you, the PM just doesn't look out like you do and they are mostly reactive, not proactive. I do think it's a good idea to offer it to tenants first. Thank you!

Mr. Green

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Re: Getting out of rentals
« Reply #6 on: January 31, 2023, 08:33:43 PM »
Look into structured sales. Could be a good way to sell and spread the income out over multiple years. This is different from an installment sale where the buyer doesn't receive title until the final payment is made. With a structured sale the money goes into a trust at settlement and is paid out as an annuity at the terms you dictate. Gains are spread evenly across the length of the annuity. This is an IRS approved vehicle but it's very uncommon. We almost did one for a property we sold several years back.

clarkfan1979

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Re: Getting out of rentals
« Reply #7 on: February 01, 2023, 05:57:07 AM »
Sometimes the stress of owning rental properties just feels too much. I am contemplating selling some of them even though I have turned them over to a PM. As someone stated before, even though you have a PM, you still have to pay attention. No one will take care of your properties like you do. And as of this year, I am the sole owner, so there's lots of things I can't do on my own.

A long term goal of mine is to move overseas - Portugal possibly. I've thought about selling a few properties, using that money to fix up the remaining ones as needed and putting the rest into Vanguard. That way, I know the ones I keep will be top notch for a few years as far as siding/roof/windows, etc. Quality over quantity. Bigger isn't always better. I have 15 doors so it's not a lot but enough.

I'd like to keep just a few properties that would cover my living expenses and, hopefully, lower my stress level.

When/if I do sell, my thoughts are to sell everything in one year because of ACA. Just take a big tax hit and ACA hit all at once. I may not qualify after this year but I am not sure since this is my first year that I will file on my own.

Just looking for some input from folks who have sold or even thought about it. I guess it's a good problem to have and I am also a bit overwhelmed being on my own again with the responsibility. Lost a bit of confidence over the years.

Thanks for your thoughts!

I totally agree with quality over quantity. I have 3 properties and 4 doors. I think it's possible to be FIRE with 5 doors, self-managing.

When you self-manage class A & B properties are way easier to handle that C & D properties. Self-managing in the rental game does require some work. The trick is to pick the work that fits your personality and lifestyle. I do the stuff I like to do and I hire out the stuff that I don't like to do. These items are probably different from person to person.

I front loaded my work. All my rentals required renovations, which was work. Then in 2020 and 2021, I did a few improvements to maximize rent. I really didn't have much to do in 2022. Over the past 6 months I haven't really done much work. I leased out one unit which required about 20 hours of my time. Normally it would be 10 hours total, but a few people got to the very end of signing the lease and then backed out at the last minute. It's not a big deal, but I had a few long conversations with people that ended up being a waste of time. 

I offered discounts on rent to retain good tenants in two units. They know they are getting a deal and don't bother me, unless it's an emergency. Both groups are young professionals that will buy a house within 1-2 years. When they move out, I can raise the rent by at least 10%.

SeattleCPA

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Re: Getting out of rentals
« Reply #8 on: February 01, 2023, 06:05:06 AM »
What I see clients choosing to do:
1. Reduce number of properties. E.g., trade two duplexes for one four-plex. This doesn't change the number of tenants probably. But you go from having two roofs to one roof, two insurance policies to one, etc.
2. Convert short-term rentals to long-term terms.
3. Trade properties for commercial triple-net-leased properties so tenant takes care of maintenance. (Also I like @clarkfan1979 's idea to move from, e.g., class c to class b properties.)
4. Slowly liquidate. E.g., When one client with 80 SFMs retired, he just started selling one or two a year. (BTW MR Green's idea, which I understand to be an installment method sale, works too. Need to make sure you understand the way depreciation gets recaptured.)
5. If you have kid or heirs, working out a deal with them to take over management duties. This next part is morbid, sorry, but if you're US citizen or resident and can leave properties in your estate so they get step-up in basis, kids or heirs may find themselves with significantly larger inheritance if they help you avoid income taxes on sales.

Missy B

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Re: Getting out of rentals
« Reply #9 on: February 14, 2023, 10:36:12 AM »
No advice or experience on this, and I'm Canadian so likely it wouldn't apply even if I did. I am also looking at getting out of landlording.

I'm in British Columbia and own a single property that I have rented for 16 years, which, between maintenance expenses, increasing mortgage interest, insurance and property taxes, and strict provincial rent-protection laws is literally eating my retirement funds.**

I have tenants who have been there 6 years. They are now paying $700 a month below the basic carrying cost of the house. They are $1000 a month below market. I gave them a $30 rent increase in Jan because that was the maximum.

I have a 10,000K plus urgent pipe replacement based on last-minute demands from my home insurer happening next week.
 Two years ago I could have evicted my tenants for that -- and I would have preferred to have an empty house instead of tenants with borderline hoarding tendancies -- but the province changed the rules last year.
 
Now you can't evict for anything except complete electrical replacement or removal of a load-bearing wall. And you have to get provincial approval, (which requires full permits and dates in advance) give them 4 months notice and a free month of rent.

The only way I can get them out is to move in myself. The property is 5 hours away including ferry, so that  poses an issue. But we're planning, my partner and I, for next year. And I've told my tenant, to give them a head's up since that's what I'd wish for myself (the market here is bloody awful) and in the faint hope that they will do a purge. Although, I think most likely nothing will change until they get the formal 2 months notice.

Oh, yes. And if you lie to the tenant, tell them you're moving in and don't, the province fines you an entire year of rent and gives it to the tenant.

**Also, my personal income is business is downtown-based, in-person only. It has not recovered from covid. I've taken work outside the core, and its going well. But I'm locked into a lease for another year and a half.

Pookie

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Re: Getting out of rentals
« Reply #10 on: February 20, 2023, 04:13:18 PM »
Yes, quality over quantity seems to be the way to go. I know I can live on less so why have so many with the added headaches.
I've moved everything to a PM but they really don't take care like I would.

Dang @Missy B Cananda isn't FOR landlords. Sorry about your situation.

I'll look into the structured sales. Anything to help with taxes!