Question for real estate investors

Discussion in 'Business, Investing & Finance' started by Concrete Helmet, Nov 30, 2019.

  1. Concrete Helmet

    Concrete Helmet Hook, Line, and Sinker
    Lifetime Member

    Joined:
    Jul 29, 2014
    Messages:
    12,246
    Oxbucks:
    $6,339
    Ratings:
    +10,661 / -848
    I own two rental properties at the current time but I've only sold primary residences in the past(homestead). I'm wondering how to figure my net take if I decided to sell one of them in the next year. Here are the numbers as they stand on that property.
    Paid 129K in 2002.
    Started renting in 2007.
    To date I've put roughly 25K into the property for upkeep and improvements, new roof, new AC, paint, appliances and misc. fixtures over the last 12 years.
    Current pay off 117K(took money out to buy another property years ago). Pay off would probably be around 105K in a year.
    Current market value roughly 245-250K.

    My plan was to keep it until it was paid off which would be maybe 7 or 8 years at current mortgage payment, then switch my mailing address(homestead it) back there and let a relative stay there for 2 years until I sold it and claim the complete tax exemption :lol2: ....Well I guess the IRS is smarter than I give them credit for :jerkit:. In other words you're not allowed to do that.

    I know there is a formula for factoring in depreciation, 27.5 years divided by the "Basis point" which is taxed at 25% but how do I find that number to get to my net? I also know that the difference between that number and additional profit is currently taxed at 15% from what I understand?
    Any help would be greatly appreciated.
     
    • NVGator

      NVGator Member
      Lifetime Member

      Joined:
      Jun 11, 2014
      Messages:
      9,906
      Oxbucks:
      $6,381
      Ratings:
      +10,127 / -493
    • Concrete Helmet

      Concrete Helmet Hook, Line, and Sinker
      Lifetime Member

      Joined:
      Jul 29, 2014
      Messages:
      12,246
      Oxbucks:
      $6,339
      Ratings:
      +10,661 / -848
      You can only hold in a 1031 for what, 45 days or so before reinvesting?....This is more of a long term plan. I want the cash to hold until the market drops, then buy at value pricing and mortgage at a higher rate(Mortgage Deed) maybe 7-8 % to the new buyer..
       
      • NVGator

        NVGator Member
        Lifetime Member

        Joined:
        Jun 11, 2014
        Messages:
        9,906
        Oxbucks:
        $6,381
        Ratings:
        +10,127 / -493
        45 days to identify a like property but yes, shorter term.
         
      • 78

        78 Dazed and Confused
        Lifetime Member

        Joined:
        Jun 9, 2014
        Messages:
        16,635
        Oxbucks:
        $14,523
        Ratings:
        +20,572 / -1,109
        You’re going to get creamed by capital gains taxes. And for what? To put the proceeds into an overbought stock market?

        NV’s right. 1031 it. You can 1031 into mini-RE funds if you’re an accredited investor.
         
        • LagoonGator68

          LagoonGator68 ###BANNED###
          Lifetime Member

          Joined:
          Jun 12, 2014
          Messages:
          5,685
          Oxbucks:
          $1,595
          Ratings:
          +3,866 / -187
          Actually live in it over 50% of the time for 2 years of the last 5 years....sell tax free up to $250k profit...stay with wife 49% of the nights....
           
          • Concrete Helmet

            Concrete Helmet Hook, Line, and Sinker
            Lifetime Member

            Joined:
            Jul 29, 2014
            Messages:
            12,246
            Oxbucks:
            $6,339
            Ratings:
            +10,661 / -848
            Cap is 15
            Nope...not by IRS guidelines...read the OP...
             
            • LagoonGator68

              LagoonGator68 ###BANNED###
              Lifetime Member

              Joined:
              Jun 12, 2014
              Messages:
              5,685
              Oxbucks:
              $1,595
              Ratings:
              +3,866 / -187

              I don’t see how they can prevent you from living in it 51% of the time as a primary residence or even 70% of the time. You could be doing a trial separation from your wife and be eligible for homestead exemption. Hell, move the wife with you. It only has to be done for 2 years out of the last 5 years of ownership.



              Also.....”Essentially, the IRS does not require the real estate agent who closes the deal to use Form 1099-S to reporta home sale amounting to $250,000 or less ($500,000 or less for married couples filing jointly). ... If you don't receive the form, you don't need to report your home sale at all on your income tax return.”
               
            • LagoonGator68

              LagoonGator68 ###BANNED###
              Lifetime Member

              Joined:
              Jun 12, 2014
              Messages:
              5,685
              Oxbucks:
              $1,595
              Ratings:
              +3,866 / -187
              Your OP doesn’t clarify this on my iPad. BTW
               
            • Concrete Helmet

              Concrete Helmet Hook, Line, and Sinker
              Lifetime Member

              Joined:
              Jul 29, 2014
              Messages:
              12,246
              Oxbucks:
              $6,339
              Ratings:
              +10,661 / -848
              The property is ripe. By that I mean it's fully improved. I just put 11K into it and the roof and AC are only 2 years old....It is a great starter home but I can't foresee it's value going up much more than maybe another 10-15 grand.....It's only 1305 sqft. and it's a tiny lot. I could probably fit the entire lot and house inside the house I live in now so there is limiting factors. If I hold until payoff I may end up putting another 12-18K into it and then the market will likely fall in about 3-5 years in all likelihood....When that market bottoms other like homes will likely sell(foreclosure/shortsale) at about 100-125.....

              The cash I get in a year can stew in a retirement CD or Bond at 3-5% in the meantime and I buy another cash, sell for inflated price to credit needly people, Mortgage Deed their ass at 8%.....thing of beauty if you ask me.....oh and without the headache of being a landlord(I also take care of 2 commercial buildings so I have plenty on my plate)….
               
              • Concrete Helmet

                Concrete Helmet Hook, Line, and Sinker
                Lifetime Member

                Joined:
                Jul 29, 2014
                Messages:
                12,246
                Oxbucks:
                $6,339
                Ratings:
                +10,661 / -848
                Dude it's been an investment property for almost 15 years.....you can't do it...trust me.
                 
                • LagoonGator68

                  LagoonGator68 ###BANNED###
                  Lifetime Member

                  Joined:
                  Jun 12, 2014
                  Messages:
                  5,685
                  Oxbucks:
                  $1,595
                  Ratings:
                  +3,866 / -187

                  And when the credit needly walk after eviction and trashing the place in a downturn.....?
                   
                • Concrete Helmet

                  Concrete Helmet Hook, Line, and Sinker
                  Lifetime Member

                  Joined:
                  Jul 29, 2014
                  Messages:
                  12,246
                  Oxbucks:
                  $6,339
                  Ratings:
                  +10,661 / -848
                  I still own the house....and sell it to the next person...rinse and repeat just like a buy here pay here car dealer all the while writing off the improvements...
                   
                  • LagoonGator68

                    LagoonGator68 ###BANNED###
                    Lifetime Member

                    Joined:
                    Jun 12, 2014
                    Messages:
                    5,685
                    Oxbucks:
                    $1,595
                    Ratings:
                    +3,866 / -187

                    Just Do It, den....skrong!
                     
                  • 78

                    78 Dazed and Confused
                    Lifetime Member

                    Joined:
                    Jun 9, 2014
                    Messages:
                    16,635
                    Oxbucks:
                    $14,523
                    Ratings:
                    +20,572 / -1,109
                    Cap rate is 15? Then why are we even having this discussion? Keep the property and enjoy the cash flow.

                    But if you intend to sell, you should consider a 1031 exchange. All that depreciation has served to put a low floor on your basis
                     
                    • NVGator

                      NVGator Member
                      Lifetime Member

                      Joined:
                      Jun 11, 2014
                      Messages:
                      9,906
                      Oxbucks:
                      $6,381
                      Ratings:
                      +10,127 / -493
                      Bingo. That’s significant cash flow.

                      1031 it into a lake house, vacation home or a ski house. That’s a reinvestment that could be sold in a few years as well or you move into it as a retirement home.

                      BTW... I’ll defer to @78 but I think you can 1031 2 into 1
                       
                    • Detroitgator

                      Detroitgator General Factotum
                      Lifetime Member

                      Joined:
                      Jul 15, 2014
                      Messages:
                      15,765
                      Oxbucks:
                      $9,501
                      Ratings:
                      +16,133 / -92
                      Didn't know that... can you then 1031 the mini-RE funds back into RE if you want? I would assume yes?
                       
                    • Concrete Helmet

                      Concrete Helmet Hook, Line, and Sinker
                      Lifetime Member

                      Joined:
                      Jul 29, 2014
                      Messages:
                      12,246
                      Oxbucks:
                      $6,339
                      Ratings:
                      +10,661 / -848
                      Cap is 15% on the difference after the 25% on the depreciation.....Were having this discussion because some people don't read the OP very well.....there is NO cash flow. In other words the monthly rent covers the monthly mortgage payment although it's on a 15 year fixed around $1500 on both....

                      Here's the thought process
                      Depreciation increases the tax burden the longer I hold because a higher percentage is taxed at 25% instead of 15% and if the market drops which it likely will in about 3 years or so I could get caught with a higher tax bill plus more likely more up keep expenses and a lower selling price....make sense?

                      If I take the proceeds now, after tax of course, I can soak bait in bonds/CD's for about as long as it takes the market to hit bottom and buy a similar house with about what I would have soaking....mark it up to a credit needy buyer without worring about appraisals and such and hold the mortgage at about 8-9%.....all without having my phone ring when something breaks...

                      Which leads me to the last reason.....I take care of 5 properties right now, my 2 rentals, my Wife's rental and our 2 commercial buildings....do you know how often sh!t goes wrong??? I'm getting tired of all that needs to be done and work at the same time. I don't like to admit it but at 55 Crete is starting to slow down.
                       
                      • BMF

                        BMF Bad Mother....
                        Lifetime Member

                        Joined:
                        Sep 8, 2014
                        Messages:
                        13,690
                        Oxbucks:
                        $14,709
                        Ratings:
                        +20,399 / -281
                        Crete, I sold a rental last year in April (2018). I sold it for $104K more than I paid for it, owned it since 2001. I lived in it initially then rented it for 15+ years. I depreciated it every year, wrote off any updates/repairs, etc and when I sold it last year I paid $2,997 in taxes. I was fine with that. I know you know this - but a good accountant is worth his weight in gold!
                         
                        • Concrete Helmet

                          Concrete Helmet Hook, Line, and Sinker
                          Lifetime Member

                          Joined:
                          Jul 29, 2014
                          Messages:
                          12,246
                          Oxbucks:
                          $6,339
                          Ratings:
                          +10,661 / -848
                          Did you 1031 to another property, I know from before you have an AIRBNB and other properties?
                          I'm looking to eliminate 1 or both of my rentals(over the next 1-3 years) because I just don't see them going more than another 3-5% in value(due to sqft and property size/location)before a downturn in value...One will be needing a roof and electrical/plumbing updates at minimum. The other is in good shape with 2 year old roof/AC and I am just finishing up new flooring, interior/exterior paint and a few other items, about 10K in total....
                           

                          Share This Page

                          The Box

                          Help

                          You don't have the necessary permissions to use the chat.

                            1. There are currently no users chatting.
                              • About Us

                                Our community sprung up when the Gatorsports message board was shut down in the summer of 2014. We pride ourselves on offering Gator-biased, yet critical discussion among people of all different backgrounds. We are working every day to make sure our community is the best Gator message board you will find.
                              • Like us on Facebook

                              • Buy us a Zima!

                                The management works very hard to make sure the community is running the best software, best designs, and all the other bells and whistles. Care to buy us a non-alcoholic Zima? We'd really appreciate it! Just click the "Donate" tab at the top of the page.