07-02-2019, 08:14 PM
(07-02-2019, 01:23 PM)ChadR Wrote: You turn your current house into a rental, you start depreciating it at the price you paid for it. eg You bought it for $150k, that is what your depreciable basis is. If it is worth $250k, you don't get to depreciate that extra $100k. When you sell it years down the road, you pay taxes on the $100k of gain. Where if you sell it now, you get the $100k gain tax free and the new rental you buy for $250k you get to depreciate the rental at the $250k basis. And then when you sell it, you pay capital gains on the gain from $250k and not $150K (this is ignoring depreciation recapture). There by saving the taxes on the $100k capital gain.
The downside to the 1031 exchange is that you have to keep in the rental game. If you ever get sick of being a landlord or want to use the money for something else, you then have to pay the taxes. But yes, it is best to never sell real estate.
Very good advice here, along with NilesMike's.
All the people I knew who had rentals primarily stayed away from single units., they preferred multi-units, that way cash was always coming in when one or two units were empty. No money came out of their pockets, like ever, it was all rent money that paid for everything.
One guy, who had many many properties never sold a property outright, he always acted as the bank, i.e., held the mortgage. I remember he sold a five unit with a small coin operated laundry-mat, he told me he couldn't keep the machines empty and had bags and bags and bags of coins in his house--I don't think he declared the coins lol. Anyways, this was his first property he bought for 20k sold it in the mid 80's for 250k but held the mortgage. The guy paid this guy every month for almost 15 years, ran into money problems and defaulted. He got the property back, had it for a few years, sold it again, held the mortgage for 20 years until it was paid off. Another thing he did was non of his rentals came with appliances, nothing, he would tell me he's in the rental property business not the appliance and repair business. He didn't want to be getting 2am calls that some dishwasher, dryer, washing machine or fridge wasn't working.
Another guy who has massive amounts of rentals told me the success of a rental was double the mortgage, in-other-words, if your mortgage is 2k a month he wanted at minimum 4k in rent coming per month--if that was not possible then he said he wouldn't buy it. His favorites were 5 units or more, that a 5 unit put money in his pocket immediately.
I guess the answer is it doesn't matter what any of us tell you--that if you want to be a landlord and you're ready then do it--but don't do it half-ass, go all in and remember it's a business, treat it as a business. And don't rent to friends or family.