Personally, I would view and consider only your downpayment because you traded mortgage payments for utility (occupancy) during that time. So your cash on cash, in my opinion, is roughly 100%. Not many investments can get that, which is why I voted not to sell.

As long as you can cover the expense of the major items, I wouldnt worry about factoring them in. You go to sell, you're going to get rheemed over them anyway.

Keep it and come back to bump this thread in 10 years. You'll feel like a genius.

Heck ya that interest rate is a factor. I'd only consider selling if I had another project or property I liked better that I needed to fund. It's a hole card for me until then.

ok. then you would be paying capital gains taxes (unless you did a 1038 exchange putting the profits in another investment vehicle). the tax exclusion mentioned above is only if you have lived in thr property 2 out the last 5 years.

I would make the decision based on what goal am I seeking. I am 70 years old and have 20 rental doors Meaning that instead of properties, I count individual units as a doors. All paid off now by my tenants. I put 20% down and whatever initial cost to rehab and then I don't put another dime of my own money in the property, my tenants pay all expenses and still have positive cash flow. They get paid off with in 15yrs even though on a 30 yr note. All my properties have been paid off for years and I love the cash flow.

So the question is what is your goal with this property? For example: My goal with rental property is to produce enough passive income to live at a HIGH standard of living in retirement. I achieve this with duplexes because they cash flow better.

I like your situation, I just don't like the property type....SFH. But you own it already so let's see if it can work.

The Good:
3.25% Mortgage, it can't be replaced at that rate!!!!!!
90k left to pay off mortgage
You HAVE rental experience..........do you like being a property manager (you gave no indication)?

The Bad
I am partial to small multi-family so I would rather we be talking about a duplex
Roof/AC/Water Heater will need replace soon. If I am a betting man, your roof could be replace by insurance right now as we have had so many hail storms that most roofs not new in last 10 years probably have damage if property is in central texas. All of my property roof replacements have been covered by insurance except the deductible. An AC replacement cost me more than a new rood with insurance coverage.
Capital Gain/Depreciation recapture should you sell will reduce your profits. Cost of selling (realtor fees, closing cost) have to be considered.

Think about this. When property is paid off you only have taxes, insurance and maintenance assuming you do your own property management.

2250 rent X 12 = 27,000 minus 6k taxes, 2k insurance and 2k maintenance . Net you 17k minus vacancy say one month rent leaves you with 15k net profit. But real estate is a tax efficient investment.

If you sell what is your net after sale commissions, capital gains/depreciation recapture.
Assume 300k sale: 18k realtor fees, 2k in closing, 90k payoff note, 10k capital gains/recapture???
Net proceeds after sale: $180k You will need to do better than 8.3% on your 180k in a CD to do better than your house when paid off. The real question is do you feel good about being a property manager. If it is a hassle for you and if you only have one rental you might want to sell.

I love my rentals, I have 10 units in Bryan and 10 units in Austin. I do my own property management and it is not hard because I have been doing it for 20 years and I have maintenance people I can use in both locations. If I only had one property and it was where I lived, I might consider keeping it. However if it in a location more than an hour away I would probably opt to sell, unless I was planning on acquiring more rentals in the area.

Ask this question: When I retire where is my monthly paychecks going to come from and how much do they need to be. Having MULTIPLE income sources will give you more peace of mind. If you are planning on only SS and your 401k/IRA I would NOT have peace of mind. Cheers.

cjsag94 said:

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Interesting perspective. Evaluating rental real estate against CD returns is not Apples:apples, but I guess it is valid to compare any investment against a risk free rate of return.

I think this post is really interesting, because managing 20 doors does not sound like a fun use of my time. So, 8.25% return, less the sweat equity of managing maintenance, billing/collections, vacancies, etc sounds awful to me! To be honest, this is one of those scenarios where you calculate the net worth over 40+ years of real estate vs market investments and you find a substantially lower return in the real estate. Only variance is if the real estate appreciates enough to overtake that (which is unlikely unless in a high growth niche market). I believe this strategy leaves millions on the table in the long run (accumulating the assets, rushing to pay them off, maintaining them, and holding the paid off equity captive in real estate).. but I've also come to believe most real estate investors are charmed by the mailbox money and the brick and mortar.

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From the outside looking in, your comments make sense But there is so many misunderstandings in your post that it is no wonder most cannot comprehend the benefits of being an real estate investor until you become one and ARE SUCCESSFUL doing it.

It like trying to tell someone how fun and great it is to fly a multi-million jet fighter. No one will totally understand it unless they had done that themselves. That is why fighter pilots instantly connect because they have something in common that the average person cannot totally fathom.

Let me say your post, although I believe it is totally honest to you, absolutely does not ring true to me.

Managing 20 doors sound incredibily hard to the average joe, but to an EXPERIENCED real estate investor who lives the reality of it and the benefits of it is incredibly easy. I am an extrovert and love interacting with people, however I am not a big fan of turning a wrench to fix a leaky faucet or to pull a toilet or replace a hot water heater.......so I don't, but I am very good a coordinating on my phone to get things done, like fishing in Alaska last week fixing an AC in Bryan TX or walking the ruins at Michu Picchu coordinating a hot water replacement.

When I first started my real estate journey, I took out loans to buy property. Yes I paid 20 cents on the dollar for most of my properties. You could too but you didn't understand the process. Let me give you a little glimpse into my world. My first duplex I bought was in 2003 when my son was a freshman at A&M and since I had just finished a 20 year USAF career flying A-10 and T-38 aircraft, I became a financial advisor where I thought the Stock Market was the avenue to wealth. After working for an employer (Well Fargo) two years, I left them and opened my own independent financial advisory firm. Did that for 18 years and sold my practice because my real estate portfolio was too much fun and profitable and watching the market for which I had no control was boring. We fighter pilot types like to be in control and my real estate fits like hand and glove!

Back to my duplexes: first one bought in Bryan for which my son and daughter resided in opposite sides while attending A&M. So let's not consider that one. My next two were bought in Round Rock TX. On paper they cost 130k each but I only paid 30k each. You know the drill 20% down, and unless they need some rehab I would put that amount in it and then I was done. My tenants paid EVERYTHING else for 12 years for which the positive cash flow paid off the duplex in about 12 years. So, would you buy a 130k asset for about 30k, manage it for 12 years using the profits to pay down the loan and then have a 20k pension for the rest of your life that exceeds inflation each year and oh by the way appreciates from 130k in 2005 to 450k today. All this for just 30k investment and learning how to manage some real estate. I will put this investment up against most others out there. There are better ones as I re-think my investments over the years. Owning a mobile home park or RV park or storage real estate could be far better but I started with little knowledge and duplex investing was easy hanging fruit.

Now, I just buy my properties with cash! I have enough, but I still get the urge to buy another here and there. When a home-run deal comes across I become a sucker again. A year ago I just bought another duplex for more money, 280k than any other property before me, including my home. Full disclosure, my home I bought in 1998 for 260k but worth about a million today.

Now, I don't go to the trouble typing this out for my ego. I really enjoy spreading the word on how the average joe can become FIRE: Financial Independent Retire Early. I have mentor many young people on how to do what I have done and I only charge them the cost of a cup of coffee or lunch. It's liking finding the fountain of youth and you want everyone to take part.

When I mention real estate investing with people the first time, I usually get one of two reactions, Wow that sounds great or OH, I would never do that. To the one's who say I would never do that, I follow up with: is it hard to get up every day on to go to work.

To each their own, what's the stock market going to do the next 1, 3, 5 years out? Not sure, but I do know how my real estate portfolio is going to do. I like being in control. Peace

You definitely make some valid points. I too would not classify real estate as a totally passive income, but more of on your time passive. Of course it can be totally passive if you decide to give the day to day to a property manager. The problem with that is that your positive cash flow takes a big hit and the quality of your land lording goes down. I get you on that.

Getting back to the specific question by the OP, are you interpreting my response as he should hold on to it? I gave no buy or sell signal as I don't know all the facts in his situation. What I did tell him and everyone I talk to about any financial decision is what is your GOAL and or objective. Because WITHOUT them you're just catching can when you can WITH NO DIRECTION> .

Did you ignore my quote: ". If it is a hassle for you and if you only have one rental you might want to sell.".

I posted for you and everyone else what a real estate portfolio could do.

Then you posted: "You could sell your 20 doors, buy tax free bonds today, and charge other people for your management services and probably break even... And remove the capital risk of all the things that can go wrong with real estate. However, that brings up the final issue I have with real estate - you are kind of stuck in it because of the tax implications of getting out of the asset class of you don't hold it until you die."

That is misguided advice! Did you not get the point that I value being Financially free AND being in CONTROL. I am an entrepreneur that allows me to do what I want, when I want, and where I want. What you suggest completely ignores that, (I don't need nor want a job that I must answer to someone else). Furthermore, you indicate I'm stuck with it due to tax implications: if stuck meaning unbelievable cash flow I see that as a good thing for which my goal was to do just that. If stuck meaning I can't get money from those assets due to tax implications until I die would be incorrect as well. You are correct that my exit plan is to either wait until either my wife or I die to LIQUIDATE my assets as the STEP-UP in Basis is an ADVANTAGE, however if I want to get my money out of my properties I simply can REFINANCE them and pay NO TAX while I AM STILL ALIVE. Additionally, my real estate is a TAX ADVANTAGE investment......meaning I pay less tax on the money made. Depreciation on property each year is a BIG advantage, writing off expenses is a big advantage......when I travel to College Station because I go to every home football game, I am able to write off mileage because I own property in Bryan. Tax fee bonds pay very little and generally will not stay up with inflation. My rents increase with inflation. I invest in SMALL multi-family and that is because there has, and always be, a market for small houses. Marriage rates and child bearing is on the DECREASE, and asset prices are increasing (bodes well for demand of small homes), but problematic for most people causing a lot of people having to rent because they cannot buy. People live for today and not for tomorrow so that bodes well for real estate investors like me. I have been collecting rent for 22 years, this year is the first time I have had to lower rents on a few properties (about 10%) but my overall rental income increases year to year. My vacancy rate over the last 22 years is less than 3%. I am sorry to tell you but having my properties paid off by previous tenants and my experience over the last 22 years gives me the advantage of saying yes I KNOW what my portfolio is going to bring over the next 10-15 years while I am still alive. The stock market not so much.

I have been a stock market investor for 45 years (still have about 20% of my investment in the stock market), and I have been a PROFESSIONAL advisor for 20 years. No need to knock that, but from my approach and experience I see so many more advantages and benefits to real estate than just being in the stock market. However, the benefit is only that if your personality and desire fits the endeavor and the larger the scale the more stable and beneficial the investment.

Sold me. Going to start investing in real estate.

JP76 said:

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Glad this worked out for you and I appreciate hearing your perspective firsthand.


But actively self managing 20 doors at age 70, some from 100 miles away does not sound like my idea of retirement but I guess it's a hobby you enjoy that keeps you busy and that pays you well so to each their own. Are you still doing all of the showings as well or paying a management company for that part ?


So what is the exit strategy ?
Pass through trust to the heirs ?

How are you managing the liability side of 20 units ?

LLC and a good umbrella policy ?

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You ask good questions, and I am happy to answer them, but I can feel you are not fully on board as this is a good investment plan because you quote: " But actively self managing 20 doors at age 70, some from 100 miles away does not sound like my idea of retirement".

So let me ask you a few questions. What is your idea of retirement? Are you on track for your ideal retirement?

VERY INTERESTED in your answers.

Now let me finish with your questions.

Yes I do EVERYTHING, I pay NO MANAGEMENT FEES. Realistically it probably takes 10-15 hours a month to take care of everything, plus a few days each year traveling to Bryan to handle a small rehab or supervising a job on a rental. Between my brother and I we have 3 rentals that are fully furnished that we can use to stay in between tenants.

So if this is not your idea of retirement. Well, let me fill you on what might be your idea of retirement. Because I do what I do, I can do what I want, when I want and buy what I want in retirement. It allows me to own a small ranch in addition to my homestead in Austin. I do have the option to turn EVERYTHING over to a property manager if I don't want to give 10-15 hours a month. I like this opportunity and I continue to mentor young people on how to buy small multi-family real estate. I get GREAT satisfaction doing that and to have credibility, I need to continue what I am doing.

Check out one of many of my success stories. Conner Kinney https://www.facebook.com/theconnerkinney

Exit Strategy: Alway subject to change but because I have so much capital gains and depreciation recapture, I plan on using the Step Up in Basis that allows me to pay no taxes on my property on the death of either myself or my spouse, whichever occurs first. My wife does all my book keeping, I do all the hands on real estate duties. My wife is not equipped, nor has the desire to manage property, so if I go first, she will liquidate soon after.

Pass thru using a Trust

Liability can be accomplished with both LLC and Umbrella.