Author Topic: Two rental properties. Sell or keep ?  (Read 2483 times)

TheBeeKeeper

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Two rental properties. Sell or keep ?
« on: September 20, 2016, 07:39:17 AM »
first one we bought about 4 years ago with cash for 200K, now worth 300K. Rent is 2K/month, tax + expenses about 9K year

Second house  - lived there for 6 years, now bought a new house and moved. Original purchase- 180K, now worth 250K , rents for 1800$/month, tax about 7.5K$/year. This house has 50K mortgage 2.75% with 7 years left, paying the bank 750$/month

Our new house worth 350K, mortgage 200K 4%

So both rentals cash flow, and landlording is going ok. My only concern is that cost of real estate went up a lot in the last few years. We can make nice profit on house 1 , but also pay a lot in tax + depreciation
If we sell one house or both , some of the money will go towards our mortgage , and the rest will go to an index fund




jessaragen

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Re: Two rental properties. Sell or keep ?
« Reply #1 on: September 21, 2016, 04:43:00 AM »
Is it worth selling now or not depends on what stage of a property market cycle the market is in. There are a big cycle (national) and a small one (your city). The recovery stage of the property market cycle is the most favourable time to buy a new home as prices have reached their lowest point and are just starting to grow again. The average length of a cycle is 7-9 years. Check this article https://tranio.com/traniopedia/tips/property_market_cycles_how_to_choose_the_best_moment_to_buy_property/

rothwem

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Re: Two rental properties. Sell or keep ?
« Reply #2 on: September 21, 2016, 07:19:44 AM »
I'd hang onto them.  It doesn't seem worth the transaction costs (realtor fees, taxes, etc) to convert the equity into index funds.

waltworks

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Re: Two rental properties. Sell or keep ?
« Reply #3 on: September 21, 2016, 09:20:23 AM »
I would sell. Very mediocre rentals at best, and you're going to have to pay the tax man eventually anyway (unless you 1031).

#1 has a ton of equity tied up in it and is yielding maybe 4% assuming no big surprises on maintenance or a really bad tenant.

#2 is maybe still inside the 2/5 capital gains exemption rule, if so, sell it and take advantage.

-W

rothwem

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Re: Two rental properties. Sell or keep ?
« Reply #4 on: September 21, 2016, 09:32:58 AM »
#1 has a ton of equity tied up in it and is yielding maybe 4% assuming no big surprises on maintenance or a really bad tenant.

Odd question...has anyone here taken out a HELOC from a paid off property to stick into index funds?  Is it even possible to get a HELOC on an investment property? 

It would seem theoretically possible to make money on the split, but I'm not sure if this is something that's commonly done. 

okobrien

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Re: Two rental properties. Sell or keep ?
« Reply #5 on: September 21, 2016, 10:45:42 AM »
first one we bought about 4 years ago with cash for 200K, now worth 300K. Rent is 2K/month, tax + expenses about 9K year

Second house  - lived there for 6 years, now bought a new house and moved. Original purchase- 180K, now worth 250K , rents for 1800$/month, tax about 7.5K$/year. This house has 50K mortgage 2.75% with 7 years left, paying the bank 750$/month

Our new house worth 350K, mortgage 200K 4%

So both rentals cash flow, and landlording is going ok. My only concern is that cost of real estate went up a lot in the last few years. We can make nice profit on house 1 , but also pay a lot in tax + depreciation
If we sell one house or both , some of the money will go towards our mortgage , and the rest will go to an index fund





I would do detailed analysis on the tax implications and how to minimize the taxes you pay.  Depending on where you fall in the tax brackets, it would likely be advantageous to sell them different years.
 Also, the second house was your primary residence.  How long since you turned it into a rental?  As long as it was the past three years you wonít need to claim all of the capital gains.  The more recently you moved out of it, the less, in capital gains, you will have to claim. 
As far as depreciation, it doesnít look like you will have to pay too much since you havenít been renting them out very long.  This would be much more significant if you had been renting them out for 20 years or so.


Cwadda

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Re: Two rental properties. Sell or keep ?
« Reply #6 on: September 21, 2016, 10:48:40 AM »
#1 has a ton of equity tied up in it and is yielding maybe 4% assuming no big surprises on maintenance or a really bad tenant.

Odd question...has anyone here taken out a HELOC from a paid off property to stick into index funds?  Is it even possible to get a HELOC on an investment property? 

It would seem theoretically possible to make money on the split, but I'm not sure if this is something that's commonly done.

My folks have taken a HELOC to buy 3 other investment properties. I don't think they'd allow you take one for index funds but it'd be worth just asking.


As for the OP:
If the first house is worth $350k then 1% is $3500/month. But if you only paid $200k for it, then $2000/month follows the 1% rule.
Same line of reasoning for the second house.

If you're getting that good of an interest rate on house #2 it makes sense to sell the first house first. Then next year you can decide if you want to let go of house #2 (and the tax burden won't be as high).

Just my $.02

rothwem

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Re: Two rental properties. Sell or keep ?
« Reply #7 on: September 21, 2016, 05:48:56 PM »


Odd question...has anyone here taken out a HELOC from a paid off property to stick into index funds?  Is it even possible to get a HELOC on an investment property? 

It would seem theoretically possible to make money on the split, but I'm not sure if this is something that's commonly done.

My folks have taken a HELOC to buy 3 other investment properties. I don't think they'd allow you take one for index funds but it'd be worth just asking.

That makes sense to me, I'd do that all day long, but the OP doesn't sound like he wants to do more landlording. Did they use the heloc for their primary residence or was it an investment property?

As for whether the bank would let you use a heloc for index funds...I don't really see why they wouldn't. I've known people that have used helocs to buy boats and motorcycles. The credit line is secured by your house, not the item you're purchasing with it.

TheBeeKeeper

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Re: Two rental properties. Sell or keep ?
« Reply #8 on: September 21, 2016, 07:50:04 PM »

That makes sense to me, I'd do that all day long, but the OP doesn't sound like he wants to do more landlording.

I am not planing on more landlording, mostly because real estate prices went up significantly in the last 3-4 years!

I will check the tax implications of selling, and then will see if we're going to sell one house or hang on to it!



Evie

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Re: Two rental properties. Sell or keep ?
« Reply #9 on: September 22, 2016, 11:46:22 AM »
Talk to your accountant. My friend has a long term rental condo that her accountant forbid her to sell due to the nice tax deduction, which she and her husband needed with their income. I think you need to meet with your accountant.