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  • #31
    Originally posted by StateOfMyHead View Post

    Thank you for your response. I was going to say no I absolutely don't feel RE is a risk asset just another thing to babysit with a slight increase in liability but maybe you are correct in that the time, aggravation is a liability. From a financial standpoint the last property is essentially guaranteed to hold value in a 10 years timeframe as it is and likely even with the necessary updates coming my way in the future. I'm really torn as to whether avoiding the occasional annoyances (renovation can be more than an annoyance but I've weathered it many times) is worth not having this investment vehicle.

    Everyone who has responded has been very helpful, really appreciate it.
    An in between would be to keep the last property.
    There is always the temptation to be all or nothing, but it doesn't have to be.
    The main concern I have about property in old age is cognitive impairment and managing tenants. But I've seen 90 year old landlords, so some people are able to still do it.

    If you sell the property and buy US indexes, and only have US exposure, you are selling an inflation hedge for say the the SP500 which may not be as good an inflation hedge, but much more diversified than one property. But then also taxation and transaction costs of selling the property.

    I tend to think moving from US property to US stocks could be performance chasing. US property has done ok in the last 20 years, but nowhere near as well as stocks. I tend to think US residential property is still undervalued compared to the rest of the world (comparables). One day that may reset to a higher valuation. Maybe in our lifetime, maybe not.

    I think it could go up further, it may not, but I don't see any compelling reason to sell. You need the credit market to be frozen for 6 months or longer for a 2009 event again. I don't really see the loose lending conditions in RE to have that occur in the next few years. Although it's hot, I don't see euphoria either, but I could be wrong there.

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    • #32
      Originally posted by pit.alumni View Post
      I just did a $50k renovation on one of my properties this summer. The rent increased $700/month so if you think of it like a bond that is 16% interest. In my market investment properties like mine are selling at 15X gross rent multiplier so an $8400/year increase in rents translates to a $120k increase in value. With bonus depreciation the $50k renovation will shelter my rental income. Not sure I could find a better place to have put this $50k. While stocks are sinking on inflation and Putin I'm raising rents. I'd at least look at the numbers closely and how much you'd owe in tax with a sale. Don't know if you still have a mortgage on these but as someone recently retired it's nice to have a steady income from rents. The director of investments of Vanguards recently predicted 2-4% return for US equities over the next decade.
      As I was reading through this thread, I was thinking to myself "how much is he going to owe in taxes if he sells the property?" That would be by biggest concern... If I'm thinking about my own situation we considered selling a rental house but when we did the numbers with our accountant it just made more sense to keep the property as a rental. The house we have is relatively new with little upkeep at this time. Also, my wife enjoys managing the 3-4 rental properties we have. So, I guess it also depends on how much hassle the property is to you...

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      • #33
        Just got the property taxes for my two paid off rentals. It's an expected expense but still annoying. Gonna hold on to my properties in hopes that they will someday generate some VHCOLA rent as people flee the VVHCOLA and VVVHCOLA's etc...

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        • #34
          Originally posted by StarTrekDoc View Post

          Be careful on the gifting inheritance with step up and counting the prior costs/subsidies and how's that counted -- would really get a lawyer to sign off on that in case audit comes around to defend appropriately -- definitely abundance of choices on whether to keep or rent.
          Oh, this is ALL through my estate lawyer. Would not do it any other way.

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          • #35
            Originally posted by Larry Ragman View Post

            The tax avoidance here does not track. It sounds like you could sell for ~$775 k and owe somewhere around $250k, leaving $525? Maybe off a little to cover selling costs, but let’s ignore those. So she gets a LTCG exclusion of $250k of the $525k. That means she owes LTCG on the balance, at 20% (maybe 23.8% if she owes the NII and ACA Medicare penalties) on $275k. Call it $55k. Certainly she could gift the rest ($470k?) to you, but I would not call it loan payback unless you had the loan properly documented. And if it were loan payback, you should have been getting market rate interest, and paying taxes on it. Regardless, with my (likely wrong) math, you would avoid the $55k tax if you inherited. Because if she sells now the tax has to be paid.

            BTW, I should say I am no expert. This paragraph is how I understand the situation, but it really should be read as a question. I am interested in the mechanism your lawyer is using to help you avoid tax. How would it work?
            This was through my estate lawyer... he said, since we have it documented with electronic payments to her and we have check receipts for all the property tax payments, then he would add that up and add on the interest rate on top, she could pay us back that amount, tax free. We only owe $170 on it, and the rest was for real estate fees, etc. She does get the tax exclusion of $250K. I discussed this with my lawyer last summer, but not recently. I can confirm with him when we discuss again... if we go to sell. I was pleasantly surprised by his numbers. He has always been conservative... so I doubt he is doing anything shady.

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            • #36
              Originally posted by SLC OB View Post

              This was through my estate lawyer... he said, since we have it documented with electronic payments to her and we have check receipts for all the property tax payments, then he would add that up and add on the interest rate on top, she could pay us back that amount, tax free. We only owe $170 on it, and the rest was for real estate fees, etc. She does get the tax exclusion of $250K. I discussed this with my lawyer last summer, but not recently. I can confirm with him when we discuss again... if we go to sell. I was pleasantly surprised by his numbers. He has always been conservative... so I doubt he is doing anything shady.
              I wrote a response, but I think I was just repeating myself. I do think you should confirm how to document all these arrangements if she sells now as opposed to you inheriting and selling. But that is just me. I’ve had the IRS question the darndest things on several occasions, and each time I was only saved by good records and the ability to explain them.

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