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We have a good problem to have. We have house that is paid for, we moved out almost two years ago because our forever house sort of landed in our lap and went ahead and bought it. I always wanted to sell, my husband thought to rent. Well I am embarrassed to say that our old house has been sitting mostly empty for that long. I finally said it’s time, so we have been painting and fixing it up to get ready to sell. We can likely sell it for 290k. My husband still thinks we should rent, especially during these uncertain times. We can probably get 2k a month. Something about being a landlord appeals to him, I’d rather have money in the bank. Pros and cons to both please if you can advise! Thank you!
We purchased a house for my mother to live in. She passed away about 5 years ago. We decided to rent it rather than sell it. Its has gone very well. We rent for about 1900 a month, we have had 2 different families in the 5 years. In between renters we had no damage from the first renter, no touch ups so we just turned around and rented it again. We are fussy when getting tenants, making sure they make 3 times the salary have credit scores of 700 or better, no bankruptcies. So far we have had wonderful tenants. Our tenants now will be moving out in September and we will rent it again.
We make sure to have the air conditioner checked yearly, roofs are in good condition, inside we already did upgrades. So the home looks beautiful and our tenants have taken care of it.
Being a landlord has been good. I just make sure i take out a few hundred and out it away for repairs in case there ever is any. Then i take 500 a month and out it away for property taxes ( texas taxes are high)and insurance. So basically we pocket 1200 a month.
I have other rentals and my tenant has lived over 5 years in that house another one they have lived for 15 years.
Was it your primary residence for two years or more? Would you have a capital gain if you sold the house? If so, I would recommend that you sell the house and take advantage of the tax exclusion on the sale of a principal residence. You would need to have lived in it for two of the last five years to qualify. Take your tax free gain and be happy wth it. Being a landlord isn't all it's cracked up to be. It can be a real headache. If your husband wins out on insisting that he wants to be a landlord, finance the purchase of a different house, so that you'll still have money in the bank (or other investments, preferably), and make it solely a rental. If all else fails, remind him about "happy wife, happy life".
We have a good problem to have. We have house that is paid for, we moved out almost two years ago because our forever house sort of landed in our lap and went ahead and bought it. I always wanted to sell, my husband thought to rent. Well I am embarrassed to say that our old house has been sitting mostly empty for that long. I finally said it’s time, so we have been painting and fixing it up to get ready to sell. We can likely sell it for 290k. My husband still thinks we should rent, especially during these uncertain times. We can probably get 2k a month. Something about being a landlord appeals to him, I’d rather have money in the bank. Pros and cons to both please if you can advise! Thank you!
When running your numbers, don’t forget to factor in income tax. And you can’t deduct large expenses all at once, depending on what they were. I rented my second home out for the first time between 2019 and June 2020. When I filed in February, I had spent $18k in expenses and brought in $10k for rent. I had thought I would be in the clear but since enough of the repair work was large, they have to deduct for it slowly over time, so we ended up paying tax on the rent. If it would kick you into a new tax bracket, that might be something to consider.
It really depends on how much upside you think you may lose out on it, and what other expenses are associated. Is the population growing or decreasing where you live?
I sold my condo homes in San Francisco every so often once had lived two out of five years. Took the capital gains without taxation. However, today those three properties would be bringing in $12,000 / month gross rents. Now I know made a stupid decision in selling. My late father said never sell your real estate if you have what he called "holding power" meaning enough income to cover the operating costs including taxes.
I had bought back in the 90's when could buy condo's under $100K. They were paid off and I had great tenants. I did have to paint out graffiti, repair a stuff once in a while, etc, but no way can I get a job today that will pay me $12,000 /month. Wages are not at all going up in a linear relationship to housing and cost of living. I blew a great opportunity in hindsight.
It really depends on how much upside you think you may lose out on it, and what other expenses are associated. Is the population growing or decreasing where you live?
I sold my condo homes in San Francisco every so often once had lived two out of five years. Took the capital gains without taxation. However, today those three properties would be bringing in $12,000 / month gross rents. Now I know made a stupid decision in selling. My late father said never sell your real estate if you have what he called "holding power" meaning enough income to cover the operating costs including taxes.
I had bought back in the 90's when could buy condo's under $100K. They were paid off and I had great tenants. I did have to paint out graffiti, repair a stuff once in a while, etc, but no way can I get a job today that will pay me $12,000 /month. Wages are not at all going up in a linear relationship to housing and cost of living. I blew a great opportunity in hindsight.
But if someone has a large capital gain, it seems foolish to give up the tax-free income. I think it would be better to take the tax-free gain and invest it into another house, if that's the desire. Then you can have your tax-free gain and still have a rental house which may appreciate and provide income.
If we weren’t going to pocket 290k I would be up for giving renting a try, but our first will be heading to college in a year and we just want to make sure we are prepared for that. I don’t think the extra income would bump us into the next tax bracket but I could be wrong, we really didn’t run any numbers.
Jack, That is true. Money could always be reinvested in a new property, by taking the tax free gains. I've gone this route too. But there's always that 6% loss to real estate sales commissions, plus closing costs such as title insurance. Also, in CA, I lost that low tax base of original purchase price with Prop 13. My reinvestment in similar property thus had a higher tax base and loss of 6% in commission, loss of the buying and selling fees, loss from another title insurance purchase, and then required a new mortgage to cover all these extra costs. In CA, any reinvestment property is taxed at the new purchase price - so much much higher rate. That is why so important to hold onto property there and not sell. So much depends on tax laws, population changes and demand, and cost of reinvestment. From my experience, the more changes buying and selling you do, the more the pockets are lined for the county assessor, the real estate agents, the title companies, and the lenders. Won't make that mistake again.
Last edited by PacificaViews; 07-12-2020 at 08:02 PM..
Yes, real estate in California is a different animal. Michigan has caps on property taxes to consider, too, but there are sometimes ways to avoid having a new sale uncap the tax assessments. Of course, the 6% or whatever loss only happens on listed properties.
I love being a landlord and having cashflow every month.. with that said given your situation you’d be better off selling. First, it’s currently a seller’s market with a bit of a bubble in prices. Second, rental investments are based off leverage. So you could take the money and probably buy 3 houses using the money from the sale as down payments... $290k right now is better then $2k a month, assuming you do something better with the money.
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