Joined Jan 2006
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Forum Thread
Selling Rental?
June 9, 2021 at
02:52 PM
Thread Details
So a friend of mine 
has a rental property which they bought 10 years ago cheap and thanks to the crazy market it has tripled in value (or more).
Would it make sense to sell this now, bank the money, and assume that in 5 or 10 years the next cycle crashes home prices for a potential new acquisition?
There is of course some tax and RE commission penalty, still, it's a lot of dough, that could be put somewhere else (inflation proof??).
Thanks for any thoughts...
has a rental property which they bought 10 years ago cheap and thanks to the crazy market it has tripled in value (or more).Would it make sense to sell this now, bank the money, and assume that in 5 or 10 years the next cycle crashes home prices for a potential new acquisition?
There is of course some tax and RE commission penalty, still, it's a lot of dough, that could be put somewhere else (inflation proof??).
Thanks for any thoughts...
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Well you can't really avoid CGT although you can mitigate it by increasing your basis. Another option is a cash-out refi and using that money to buy more rentals.
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I've kind of looked into my 8 rentals and I decided to keep my properties.... just love that passive income. And I purchased 5 properties in the down turn, some have tripled in value as well.
I kind of used the fund DNP to compare... fund pays about a 7.5% dividend.
For example, if I sell one property I could get $240K (no mortgage). Figure after commisions, capital gains tax I would be left with $195K. I get 1,660 for rent (and there is ROOM for growth... figure market rate is 1,800.00).
OK... 195,000 x .075 = $13,500.00 in dividends. 240K less capital gains tax less commisions.
Rent = $19,920 per year less $3K for real estate taxes less $3k for condo fees less $1k for repairs. I am left with $14,625.00.
NOW, you will have to pay tax on those dividends and I basically run my property close to zero after expenses.
20% tax on dividends... profit becomes $11,700.00.
I KNOW MY MATH IS OFF... but you can figure it out.
You also need to consider that you will have to pay taxes on more of the principle since every year you are depreciating the value of the home... this should be VERY SMALL. BUT BUT BUT you need to consider the headache of not having a rental property.
I want to retire early and want to have something to do (within the next 3 years) so I kind of want to keep my properties.
There is no right or wrong answer... but I will tell you this... IT IS TEMPTING.
ALSO... there will NOT be a 2008 crisis again... real estate prices may fall but may fall just a little (15%???)
Why not? Not everywhere is overpriced. People still need to rent in Dirtwater, Illinois.
You still pay capital gains pro rata when it wasn't your primary residence
One strategy for paying less tax is to move back into your rental and use the property as a primary residence before selling. Living in your rental full-time for at least two years prior to selling can help you take advantage of the gain exclusion of $500,000 ($250,000 if single), which can wipe out all or most of your gain on the property.
"You make money on Real Estate BY BUYING LOW!"
In today's market there is no much that is low. And can you give me an idea about a NOT Overpriced piece of real estate? I think not.
ALSO... my philosophy is one bathroom and one kitchen is ONE headache. You really don't want this headache if you are not profiting $500/mnth. So the cheapest rents in IL is about $400 for a studio... HOW MUCH A MONTH CAN YOU MAKE ON THAT?