Being a small landlord: Investment or business? (weather, inherit, retiree)
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Keep in mind once you rented out the property for more than 5 years, you are no longer entitled to the $250K/ $500K capital gains exemption for having lived there the 2 out of last 5 years. If you choose to sell it, you'll be subject to 1) depreciation recapture, 2) capital gains tax.
Unless you do a 1031 exchange but that means you will need to buy another rental property.
As long as he lives in it two out of the last five years he can claim the Capital gains exemption, but he would have to recapture his depreciation. The overriding thing is he has never lived in it.
Not sure what your estate plan looks like, however have your considered passing the property on to a relative (your daughter, perhaps)? Your estate planning atty can discuss options, however this might be a nice vessel to pass along wealth.
And I would put the daughter in charge of the day to day operations. She may be a crappy tenant but possibly a great landlord. I have properties and will require my heirs to landlord at least a year from their inheritance. I think there would be a lot less Karen behavior and anti landlord thinking if people saw the reality on the other side by working in hospitality and landlording.
A few years ago, my sister-in-law died and my wife inherited her 401[k]. It should have been a simple process. The SIL had a will, my wife was the executor of the will, and my wife was the sole heir. The probate court put up a big fight which caused us to hire multiple lawyers, and it dragged out for over a year.
We decided to put all of that inheritance into buying a commercial building that we rehabbed into an apartment complex. But before we bought the building, we first formed a corporation, and this building is owned by the corporation. Both of our sons are part owners of the corporation. We hope to be able to avoid the courtroom fighting when my wife and I pass away. Our sons are already part owners of the corporation.
A few years ago, my sister-in-law died and my wife inherited her 401[k]. It should have been a simple process. The SIL had a will, my wife was the executor of the will, and my wife was the sole heir. The probate court put up a big fight which caused us to hire multiple lawyers, and it dragged out for over a year.
We decided to put all of that inheritance into buying a commercial building that we rehabbed into an apartment complex. But before we bought the building, we first formed a corporation, and this building is owned by the corporation. Both of our sons are part owners of the corporation. We hope to be able to avoid the courtroom fighting when my wife and I pass away. Our sons are already part owners of the corporation.
How will your interest in the building pass on your death. If by your will then it will go through probate. Depending on your state holding your interest in a living trust will bypass probate and the horrors that are attached to it.
How will your interest in the building pass on your death. If by your will then it will go through probate. Depending on your state holding your interest in a living will bypass probate and the horrors that are attached to it.
This is what our lawyers recommended.
After watching how probate courts can completely screwup a will with only one heir and that heir designated as executor, I have no idea how to make a will bullet-proof.
My wife and I both have new wills. Both wills state that our interest in the corporation pass to our sons after our deaths.
After watching how probate courts can completely screwup a will with only one heir and that heir designated as executor, I have no idea how to make a will bullet-proof.
A will is part of the probate process. A will guarantees that what is passed through it will go to probate. Lawyers make money probating wills. In some states lawyers are guaranteed statutory fees. In CA I believe it is about $17,500 to pass a modest house through probate that probably takes a law clerk less than 10 minutes.
Sometimes there are reasons that you want to keep assets in your name and not avoid probate. I would talk to an estate planner that is familiar with your states laws. But generally avoiding probate is a good thing and there are different ways to avoid it based on the asset and your situation.
Renting out a condo is the absolute worst type of landlording. You have property taxes AND the condo fee. The tenants are hard on the unit. .
Geez, property taxes and maintenance expenses are the rule for any property type. A condo can get you into a much better neighborhood that will attract a better class of tenant and get you higher rents. I have $500,000 condos that are two parcels away from $30,000,000 houses. That is a big difference than a $50,000 condo surrounded by $100,000 houses.
Your condo fee pays for the items that would be out of pocket on a SFR. But you can benefit from economies of scale. My share of a 1,000 sf roof is split by the 20 units it covers. I do have the additional elevator costs but that is divided by 58 owners. Thos common expenses can be high if you buy an amenity ladened project that has high costs.
But the devil is in the details because "real estate" is not a homogeneous asset.
Also for all you saying SELL you have not even heard his financials. Not a good way to make a decision.
^^ Because the OP seems to concede the financials could be good. But s/he's not sure s/he wants to be a landlord even with good financials. (Bold is mine)
Quote:
Originally Posted by Strannik33
.......I am trying to decide whether to sell the condo or become a landlord. ...... while the condo rental would bring a good amount of money, I have had nothing but trouble with it. The dreaded letters from the condo management ...... Plus there was a ceiling leak from above ...... the pets ruined the carpet, the bathroom floor had some leak from somewhere. . . .
I am retired, and don't really care to be a true landlord. On the other hand, if I sell the condo, there are no good places now to put the proceeds. Essentially, put the $$ in the stock market or in cash...[/b] .......Not ideal either way at this time.[/b]
I realize that using a management company would relieve me from the day-to-day complaints, but I'd end up paying for every repair anyway (I assume). The biggest worry is renting to someone who is great on paper but then refuses to pay.
Seems to me the OP is only even thinking about possibly renting it out because other people are in his/her ear suggesting s/he do that -- and s/he isn't thrilled about options for where to put the money (as if that's a bad thing).
I've had the chance to rent out properties, but chose to sell, make a clean break, take the money and move on with my life. I don't need to squeeze out every dime of profit I can get. Personally, I think being landlord means headaches. I'd rather let my money work for me and have no headaches. That's just my opinion. Clearly I'm not the landlord type -- certainly not for just one property anyway.
But literally every one of his issues are SELF IMPOSED and easily solved. Then the return is what would make the decision for me.
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