Hello- This seems pretty obvious, but I'd like to know if it is correct thinking. We have a rental property, and due to a bad rule change by the HOA, we can renew current leases, but would be #10 in line to be able to rent to new tenants.

Rent is $950 per month lower than the current going rate. We have great tenants, and they are paying the going rental rate from 3 or 4 years ago.

Sale price for units have gone up a lot. The town homes are cookie cutter, and comparables with no improvements are easy to find, backing up the significant price increases in both rent and sales price.

A best case scenario for what I believe the tenants can pay, would have us $6000 per year below the market rate. If we squeeze too hard they will either turn into bad tenants, or move, which means we have no rent from the property, and force a sale.

I think we should sell now. My question is, why should we not sell? The overall picture is more complicated in that we have a second rental property in Maine, that is almost paid off, and we would roll the rent from that into the FL rental property, and pay that off.

We could sell the FL property, pay off the Maine property, and either pay half our mortgage for our home, or invest in another property (I say invest, as our mortgage rate is low). We have had the FL property for 7 years, and have not set up depreciation on it, which should ease the tax picture with regards to a sale.

Why should we hold onto the FL rental? Any other ideas for what to do? I am approaching my mid 50's, so will be working for a while longer.

Thanks in advance

Dan

I'm a Florida attorney and can say prices right now are absolutely bonkers high. No one I know seems to think this is going to end. We are short on supply and the world has figured out how to work remotely. Everyone is flooding here.

It's hard to say if it's the right time to sell. I see prices only going higher right now. Where is the condo?

Also, are you sure your rental terms are not grandfathered in as you bought before the rule change?

If it were me I would look at market rents first, your tenant may be well aware that a significant adjustment is in order and is ready to pay it. Look and see what the comps rent at. This is not UNICEF this is a business.

EVERYTHING i have read about rental properties centers around Rule Number One.

Rule Number One is : get good, dependable tenants.

Rule Number Two is : See Rule Number One.

if you have good tenants -- i would not be in such a rush to sell. You've already done all the hard stuff.

Just raise the rate a modest amount and keep everything moving forward status quo. They should not be blind to the fact that prices go up -- they should ALSO know they are getting a good deal and be in no hurry to leave. (moving is a PITA and they would have to find a comparable NEW place which would NOT be simple...)

A certain % price increase should not be unexpected. Inflation is a thing.

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I've debated selling my rental off and on for a while.

On the one hand, I've sunk a lot of money into it over the years. It's going to need a new roof pretty soon, and it's rented very much under market value. The tenant can be a handful too.

On the other hand, it's been a pretty reliable source of income for the past 6 years. It's paid off, the tenant cares about the house, and she almost always pays on time. I've had a bounced check only once since 2014, and it was because her insurance company cashed her check early.

I don't see anything about the mortgage status of yours. Is it paid off? Honestly, if it were me I'd be looking to invoke the snowball effect: focus hardest on the house that's closest to getting paid off, then roll that house's income (minus taxes and insurance) into the other house's, then do the same with both rental units for my personal, then bank all of the rent plus your house payment.

Overall, as mentioned if you have dependable tenants I wouldn't rush to get rid of it just yet.

Hello Timdogg6- we live in Naples, and the only grandfathering that they are allowing is the ability to renew an existing rental. I think there is some legal dispute going on to reverse that, but out of 200 units or so, they only will allow 52 units to rent.

Rents are going for $2700, we are charging $1750. This one is in an great school area, and there are identical developments in the area (not similar, identical) and the rent figure is bearing out, and higher with recent updates.

I expect the prices will go up. The tenant is in the trades, and is the only income in the house. I do not think we could put them much past $2200.

Sell the one in Maine-you don’t live there. I can’t imagine how much of a PITA that might be.
Roll that $ into your home and pay it off.
Bump the rent by $100 -200bucks if you have good renters-they will figure it out. And don’t worry what you might get for rent right now…that’ll just frustrate you.

More importantly, pay off your mortgage early-saving you interest. And then all the rent money can go to paying off the mortgage on the rental. No way I’d have two rentals in two different states (unless my kid was in one of ‘em).

How broadly diversified is the rest of your portfolio? Are you overweighted in real estate versus other investment categories?

I would say a big chunk of what you should do will come down to the question of do you want to continue to own your own business (the rental properties) or would you rather get out of that and into other, more passive real estate for that part of your portfolio?

You're currently unable to rent for anywhere close to market value due to the HOA, so they're forcing you to leave a bunch of money on the table.

If this were me, I'd dump that property and invest the results, taking the time to rebalance your overall portfolio to whatever allocation in each category you've deemed appropriate.

With regard to paying down your primary residence mortgage early, you're probably much better off in the longer term (5 years+) investing the money wisely (in things like diversified index funds) rather than using that money to pay down low interest debt in the short term.

I'll add, this isn't to be taken as financial or other advice, merely a personal opinion.

As soon as the snowball effect from the Maine property is no longer needed, it will be for sale. I have a depreciation schedule on it, so I may need to live in it as a primary while I do any repairs prior to selling, to kill the tax crunch that will happen. believe me I'd love to sell it. Until recently it has been a burden. Now it pays my FL AC and takes us out to dinner once in a while after paying the mortgage and expenses.

BTW what we owe on the Maine property is down to under $60k. It is biweekly and is melting away now.

We want rental income when we are older, so we would be reinvesting into closer properties that have less rental restrictions.

quote:

Originally posted by DJ_Boston:
We want rental income when we are older.....

For me, Investment Income (i.e. Stock Market) is a much simpler thing to do. Lot less headaches as I was approaching retirement.

Sorry but Google: "what happens if i don't depreciate my rental property"

And then please consult a tax advisor (CPA or Attorney)

Spoiler for the rest - Yes you can pass on depreciation each year, but upon sale you still must recapture depreciation or what would have been depreciated. Therefore there is little benefit to passing on depreciation.

Dear renters,

As you are probably aware, rental rates have skyrocketed. Since you have been excellent tenants, we have kept rates low. We completed a market analysis on the property and we believe we can rent the place for $1700 per month. You are currently paying $900.

At the next renewal we will be raising the rent rate to $1200. This is well below market value.

quote:

Originally posted by bubbatime:
Dear renters,

As you are probably aware, rental rates have skyrocketed. Since you have been excellent tenants, we have kept rates low. We completed a market analysis on the property and we believe we can rent the place for $1700 per month. You are currently paying $900.

At the next renewal we will be raising the rent rate to $1200. This is well below market value.

The only downside to that is if the current renters decide to or threaten to leave, knowing you can't replace them, you'll potentially drop from $900 rental income to $0 rental income.

They are probably aware they can hold you hostage a bit knowing you can't replace them at this time.

quote:

what happens if i don't depreciate my rental property

Interesting. As for other investments, we're in an OK position. We live pretty modestly for Naples FL standards, but could certainly do better with regards to frugality. I do my own repairs for nearly everything.

quote:

Originally posted by DJ_Boston:
As soon as the snowball effect from the Maine property is no longer needed, it will be for sale. I have a depreciation schedule on it, so I may need to live in it as a primary while I do any repairs prior to selling, to kill the tax crunch that will happen. believe me I'd love to sell it. Until recently it has been a burden. Now it pays my FL AC and takes us out to dinner once in a while after paying the mortgage and expenses.

I do not think this will happen the way you are thinking. Moving into a rental property will not allow you to bypass any depreciation recapture, or any capital gains, for that matter. When you move into the rental and convert it to a personal residence, that triggers a tax event where the depreciation is recaptured at that point. Also, there’s a step up to current market value, so you owe the capital gains for that gain. Usually, the latter is a far greater tax hit than the depreciation of the improvement value at the time of purchase.

From that point forward, if you live there at least two years, you won’t pay for any gains from the time you moved in until the sale. I could be wrong because things may have changed, but consult a tax advisor before you load the trailer and move.

quote:

Originally posted by Jamess1:
Sorry but Google: "what happens if i don't depreciate my rental property"

And then please consult a tax advisor (CPA or Attorney)

Spoiler for the rest - Yes you can pass on depreciation each year, but upon sale you still must recapture depreciation or what would have been depreciated. Therefore there is little benefit to passing on depreciation.

Correction. There is NO benefit to not claiming the depreciation. It will be recaptured as if you had taken it anyway, so how could there be any benefit to not doing so? About the only thing you could do is allocate a larger percentage to land vs improvements when you create the depreciation schedule. Again, I cannot see why anyone would want to do this.

quote:

Originally posted by DJ_Boston:
We have a rental property, and due to a bad rule change by the HOA, we can renew current leases, but would be #10 in line to be able to rent to new tenants.

Im confused on what this means?

Honestly, if it were MY rental, that rule change would be null and void.

A rule like that is incompatible with American freedoms. I would ignore it. Completely.

Just fill the place with renters, as you see fit.

Your mileage may vary.

quote:

Originally posted by bubbatime:

Im confused on what this means?

...

A rule like that is incompatible with American freedoms. I would ignore it. Completely.

Just fill the place with renters, as you see fit.

Your mileage may vary.

What this means is, in simple terms, when he bought the house, he entered into a legal agreement with a management group (aka, the "HOA") that gets to make rules for the good of the neighborhood. One of the rules they just changed was regarding the owner's ability to rent the property.

You may agree or disagree, but the fact is, it's a legal agreement, and he is bound by it. He says they (some of the homeowners) are fighting it, but until it's adjudicated, if he violates the rule, there will be hell to pay. It's not a rule I'd violate unless I had deep pockets and a point to make.

He may or may not agree with the rule, but he knew going in that there was an HOA and agreed to be bound by the rules they made.

To those of you (us) of the opinion you'd never live under an HOA, well, that's getting harder and harder to find, especially in newer, nicer, planned communities.

And besides, as has been pointed out in other threads, property ownership is an illusion anyway. At best, we lease our property from the government (property taxes).

[/CYNICISM]

Sell NOW and get the hell out before this whole market implodes.

I had a rental unit (condo) in a town here in PA that traditionally has been tough to sell a house in due to high property taxes; a year or longer on the market was not unheard of in previous times.

We put it on the market in May 2021 and had dozens of showings almost right away and had 7 offers within 3 days and accepted a cash offer for over asking price.

This market is perfect if you’re looking to get out.

Since there's real money involved for you, I'd spend a few bucks to consult a Real Estate attorney and a CPA about some of the issues.
Start with the homeowners Associations new rules to see how they apply to you, if they are legal.
Even if you don't intend to challenge them, it would be nice to know if they can enforce them.