The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: wright55 on January 19, 2016, 02:38:40 PM
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I am looking into selling approximately 500k in rural real estate my wife and I own and 1031ing it into 4-5 SFRs in or city. Since this is not part of our primary residence, selling will trigger capital gains taxes. This is why I want to do the 1031 of course. I have not owned rentals before, but have flipped several homes and feel pretty confident in the rental market in my area. Family members also in place to draw from their vast renting knowledge. I plan to use this as 1/3 of retirement portfolio as we acrue the rest in 401K over the next 10-15 years. What else should I be concerned with surrounding this type deal and/or other investment options I should seek.
THANK YOU IN ADVANCE!
Stats-
Me-35-85k/yr-
Wife-33-80k/yr-
Total debts (including house @ 4%) are approximately 175k. 2 cars @1.95% for 30k
Total assets (excluding subject land) 200k (180k in 401(k)/20k cash).
2 kids 12/2 YO
Very stable jobs with high growth potential.
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I really love my rentals, and I am acquiring three more this year, but I am the first to admit that I am learning all the time and my ability to choose better properties, make them cash flow more, and feel less stress as I acquire them is always evolving. I often fantasize about what I would do with a large windfall, and imagine plowing it all in to rentals at once and calling it quits then and there.
That's when I take a deep breath and realize that the best thing for me (and I believe any other new landlord or real estate investor) is to start by acquiring only as fast as you can digest the properties and make them operational and relatively problem free. To start with, I think that means one at a time. Buy, rehab, get renters in, be sure they are paying for a few months. Then buy another. Then maybe buy one or two more.
Just my two cents, but I think a slow approach acknowledging lack of personal knowledge will yield best financial results.
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Can you earn income from the land by having it farmed? Or harvest lumber? How much?
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SwordGuy-
Not really. Maybe 3k/yr in hunting lease/grazing fees. I currently enjoy the opportunity to hunt my own land though. It does hedge inflation well, but growth is nothing compared to other investment options.
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iamlindoro-
That's the trade off... I could do one first (say 150k) and pay taxes on the "boot" 350k that would be 70k in taxes due if I am not mistaken. But, to your point, it would be much less risky biting off only what you can chew.
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Indeed, the tax element is important. Can the land you are selling be subdivided in some way that keeps you from needing to rush into rentals?
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It could for sure. Someone could buy it all (500K), or likely two persons @ 300+200 . Won't really know until you see an offer, but that would probably be the best. That would enable a slower ramp up of houses and not pay most the taxes (depending on the settlement and future house differences). I should probably market it leaning heavily this direction. Should also be able to get more per acre...