Rent out house or just sell and cash out?

[Killroy1999]

Capital gains are taxes differently than income. Those numbers I used are on top of whatever incomes are underneath. Tax brackets change even more if you trade incorporated.

When you get into options and futures, there are incredible maneuvers that lowers tax payments significantly.

Then best shelter I've found is family dynasty trust. Not limited to just stocks, funds and some options like retirement accounts. With trust, I can short stocks, trade options and futures on margin. All tax-free!!! And pass it on to next generations... tax-free!!! Within certain usage and withdrawal restrictions.

I thought long term capital gains for most earners was 15%?

 

[ctwo]

Gifts are entirely legal.

What they choose to do with it is up to them.

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2018, 2019, 2020 and 2021, the is $15,000.

The fact that you are gifting them the rent does not exclude you from declaring FMV rental income on a rental, or you will be claiming personal use and not taking advantage of rental deductions and depreciation.

 

[Free_Bird]

People I know who rented their extra House. Maintenance was the biggest issue. Renters run the place in to the ground and it is up to the landlord to keep things in shape.
One of their houses cost $20k in rehabilitation after Tenants left. Landscape, some property damage and a dumpster full of trash left behind were directly contributed to Tenant abuse. Far more than a security deposit covered.
Another property the tenant moved out because of water damage. A nightmare of not doing a property inspection by the landlord. The Tenant didn't care seeing signs of a developing problem.

I wouldn't rent anything less than a Cinder Block House to Tenants. Than I can be carefree and just sit back and collect rent.

 

[scootergmc]

I thought long term capital gains for most earners was 15%?

Depends on how you're set up.

 

[GAJ]

I'm currently of the opinion that individual landlords will soon be a thing of the past in CA, favoring larger companies who can offset the taxes and financial risks. But that's just me

Completely agree and that will result in higher rents, without question.

 

[GAJ]

The fact that you are gifting them the rent does not exclude you from declaring FMV rental income on a rental, or you will be claiming personal use and not taking advantage of rental deductions and depreciation.

Nope.

It is up to them how to spend the money.

None of my tenants pay market rent.

Not even close.

My daughter is the closest to market rent of the three homes and her and her husband make far too much money to require any gifting at this time.

Will start that when I get SS and we will likely gift them $40k/year at that point (or whatever the maximum is in 6 years so as not to pay tax).

I'd rather see what they do with that money while I'm alive.

 

[GAJ]

People I know who rented their extra House. Maintenance was the biggest issue. Renters run the place in to the ground and it is up to the landlord to keep things in shape.
One of their houses cost $20k in rehabilitation after Tenants left. Landscape, some property damage and a dumpster full of trash left behind were directly contributed to Tenant abuse. Far more than a security deposit covered.
Another property the tenant moved out because of water damage. A nightmare of not doing a property inspection by the landlord. The Tenant didn't care seeing signs of a developing problem.

I wouldn't rent anything less than a Cinder Block House to Tenants. Than I can be carefree and just sit back and collect rent.

Being an "absentee" landlord is not a good plan, that's for sure.

 

[Killroy1999]

Being an "absentee" landlord is not a good plan, that's for sure.

I would call myself an absentee landlord. If you have a good property manager its fine. If not, you may be wondering why your place is trashed and no one wants to rent it. You pay one way or another. :laughing

The stock market is great because "you can do it in your underwear", yet if you are OK with a little side hustle and you want to grow your net worth more, I recommend rental property as part of your overall portfolio.

Since I am a lazy landlord, I have not run the return on investment numbers in a while, but the last time I did, I was beating the stock market, so bought 3 more units in Texas. :teeth

I don't use leverage/loans for investing in the stock market and that is the big difference between stocks and real estate. In real estate I can relatively safely use "other peoples money" a major principle from the Rich Dad Poor Dad book.

My wild guess is that if you have to ask, then you don't want to be a landlord. More property for us. :laughing

FYI, my regular gig is a salary earning engineer. If you don't like rental property, then I recommend some kind of side buisness for the tax deductions. W2 earners get screwed by taxes. Rich people take the expenses that they normally have and call it a "tax deduction" and reduce there taxes. I'm not aggressive at doing this, but I'm excited by the ~effective tax rate on my tax return.

 

[GAJ]

The stock market is great because "you can do it in your underwear", yet if you are OK with a little side hustle and you want to grow your net worth more, I recommend rental property as part of your overall portfolio.

As my wife and I, now 64, started contributing the max to IRAs in the late 70s we have plenty of money in stocks.

We also have boring tax free munis, and four rental properties in Sonoma County.

One is commercial which my wife owns with her sisters, and the other three are small detached homes nearby.

I think I'm diversified reasonably well and still am the happiest with the rentals than any other part of our investments as I get a sense of satisfaction from providing decent value housing to working folk.

Don't get any sense of altruism from stocks! :laughing

 

[ctwo]

Nope.

It is up to them how to spend the money.

None of my tenants pay market rent.

Not even close.

My daughter is the closest to market rent of the three homes and her and her husband make far too much money to require any gifting at this time.

Will start that when I get SS and we will likely gift them $40k/year at that point (or whatever the maximum is in 6 years so as not to pay tax).

I'd rather see what they do with that money while I'm alive.

It's probably good not to disclose what you're doing, but not charging FMV rent or not reporting collected rents as income while taking rental deductions is not legal.

If you are charging a relative a nominal fee for "renting", the IRS might consider that to be "personal use" of the property and disallow any expenses you want to deduct from that "rental" income (especially depreciation).

But if you've found a legal way to collect rent and not declare it as income on a tax return, I'd like to hear it. I am aware that you may have expenses, such as a mortgage, property tax, maintenance, depreciation, and a number of other writeoffs, which conceivable offset all rents, but I think you properties are paid off and have a low tax basis, so...

The gift is unrelated.

 

[180yzfr1]

I have remodeled my house twice on the back of rentals, there is some grief, but for the most they are good.

 

[Holeshot]

How do the rich get richer? They own quality real estate. Real estate is a hedge against inflation, but more importantly, it's a forced savings account so long as you don't refi and pull equity out.

I'd keep the asset and rent it to good quality tenants. Don't maximize rent; maximize the quality of the tenant you choose. Look at rental income this way: your tenant is putting money into your retirement account. Run the numbers on the year over year return. ROI increases every year due to equity increasing from debt paydown so long as the property increases or maintains value. It depends how much equity you already have, but run those numbers. If you need help, google it or PM me.

 

[GAJ]

It's probably good not to disclose what you're doing, but not charging FMV rent or not reporting collected rents as income while taking rental deductions is not legal.

If you are charging a relative a nominal fee for "renting", the IRS might consider that to be "personal use" of the property and disallow any expenses you want to deduct from that "rental" income (especially depreciation).

But if you've found a legal way to collect rent and not declare it as income on a tax return, I'd like to hear it. I am aware that you may have expenses, such as a mortgage, property tax, maintenance, depreciation, and a number of other writeoffs, which conceivable offset all rents, but I think you properties are paid off and have a low tax basis, so...

The gift is unrelated.

All our income is declared, I've never said otherwise, that would be colossally stupid.

I'd be in trouble if I was charging lower rent vs "market" value for my daughter but she pays the highest rent of all and is much closer to market rent than my other two tenants not related to me.

There are tons of mom and pop landlords that charge below market rent and do not raise rents yearly in lockstep with the "market value."

 

[GAJ]

How do the rich get richer? They own quality real estate. Real estate is a hedge against inflation, but more importantly, it's a forced savings account so long as you don't refi and pull equity out.

I'd keep the asset and rent it to good quality tenants. Don't maximize rent; maximize the quality of the tenant you choose. Look at rental income this way: your tenant is putting money into your retirement account. Run the numbers on the year over year return. ROI increases every year due to equity increasing from debt paydown so long as the property increases or maintains value. It depends how much equity you already have, but run those numbers. If you need help, google it or PM me.

:thumbup

Tenant turnover has a cost just as it does in business.

 

[bikewanker]

Will an increase in immigration lift the rental market?
Will student loan forgiveness lift the housing market?

 

[Intheapex]

Rent it out abs bring in positive cash flow then sell in 15 years when it has appreciated in value

 

[ctwo]

All our income is declared, I've never said otherwise, that would be colossally stupid.

I'd be in trouble if I was charging lower rent vs "market" value for my daughter but she pays the highest rent of all and is much closer to market rent than my other two tenants not related to me.

There are tons of mom and pop landlords that charge below market rent and do not raise rents yearly in lockstep with the "market value."

I was just commenting on your statement that you haven't paid income tax in years. Most retired folks with multiple rentals usually have them paid off and they have a low tax basis, so finding deductions to offset the rental income becomes a problem.

 

[GAJ]

I was just commenting on your statement that you haven't paid income tax in years. Most retired folks with multiple rentals usually have them paid off and they have a low tax basis, so finding deductions to offset the rental income becomes a problem.

Depreciation is a big part of it of course.

 

[afm199]

How do the rich get richer? They own quality real estate. Real estate is a hedge against inflation, but more importantly, it's a forced savings account so long as you don't refi and pull equity out.

I'd keep the asset and rent it to good quality tenants. Don't maximize rent; maximize the quality of the tenant you choose. Look at rental income this way: your tenant is putting money into your retirement account. Run the numbers on the year over year return. ROI increases every year due to equity increasing from debt paydown so long as the property increases or maintains value. It depends how much equity you already have, but run those numbers. If you need help, google it or PM me.

Best advice so far.

Rent it to good tenants or GTFO. You may discover that having tenants when you are sixty and retired is not what you planned on.

 

[gnahc79]

For anyone advocating Dubs to rent out his townhouse:

turning my townhouse I've owned for almost 11 years into a rental AND then renting a larger house around the corner

To me this scenario is a lot of risk, time and stress for a young father and husband. If Dubs could safely get a mortgage on a SFH for their primary residence and with less than ~5 yrs left on the townhouse mortgage, then renting it out would be a good choice IMO.

Dubs is staying in your townhouse really that impossible? For me, the mrs and my two boys in 1000 sq ft for 12 yrs....it's cozy, but we make it work. Even with online school at home. Mortgage will be paid off when our oldest goes off to college in 5 yrs.