Reply to Should I sell my house or rent it out?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.[/quote]

Isn't her house paid off and she will make rental income? Your scenario assumes the house only carries costs and appreciate with inflation if at all.  She can take rental income and invest it in the markets. She needs to calculate how much rental income she will net and compare with the performance of her market investments. She isn't likely to do better in the markets than she is already doing, because this assumes re-education and for her to change her strategies.

Another question to ask is whether she wants to pass the house on to her kids.  She needs to do the numbers, that's the bottom line.  Also, it is beneficial for her to sell and not pay cap gains tax on her appreciation now before it gets rolled over into a rental property.  But then she gets to deduct expenses of rental maint. from her income as well as depreciation. Depending on her income bracket she may get tax breaks and invest the money she would have had to pay in taxes each year.

What you say (cash out, pay no tax and invest the whole 600+K in the markets that will continue growing steadily with a rather high rate of 6% and with no risk) sounds tempting and convincing, but I don't think counting on markets consistently returning this for the next 2 decades is realistic.  You are looking at the past  performance, but then the same rule has to apply to housing market where properties keep appreciating.  Yet we don't believe this will continue and believe housing prices may actually drop or barely keep up with inflation.  What makes you believe markets will keep rising in that scenario?[/quote]

The stock market consistently returns 7%+ over time.  So as long as you take it out of market a few years before you actually fully need it you should be good....market is the simplest way to get a good return.  Much less risky than a rental house, especially one that's older and will need work. What if you go 3 months between renters, then your profits for the year might be gone. [/quote]

Are you saying everyone who had been using RE for investment is foolish? If it is that easy to make 7% yearly with no risk why isn't everyone doing it?  It's not just regular schmucks investing, it's billion dollar companies, they buy RE too.   They [b]key is diversifying[/b][/quote]

Not really.  You can diversify more easily with a REIT.  The reason very rich or professional RE investors do it is because they have a system that works at scale and need the tax write-offs--they have accountants that help them plan the deductions/business expenses, they can get loans at a good price so they aren't using their own money (a paid off house is still using your own money because you could sell it and get that money),  they have teams of managers/contractors to optimize rent collection, repairs, turnover of apartments, they have insurance deals etc.  If you try to do a real estate one-off without all these things, it has a chance of sort of paying off and being a good inflation hedge, but it usually offers more risk than reward and much more hassle than comparable investments.
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REIT is the way to diversify without the risk of being a landlord.

Shocking that many do not understand that yes, the market has averaged over 7% for 70+ years.  Put a good portion of your money in a SP500 or total stock market index and then diversify with the other funds you deem appropriate.  But use the funds, as they reduce the individual risk (and stress of managing).

Fact is majority of people do NOT make money as individual landlords.  Most struggle to break even, let alone make 7%+
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I am guessing those struggling to break even have debt and don't own rentals free and clear.  Not OP's situation.  She will make profit.  How much depends on rents her area commands and her expenses on the house (which are tax deductible for rental property).  She only has one modestly priced home, not millions invested in RE.  [/quote]

But it's still often sub-optimal compared to alternatives.  If she sold she would pay no capital gains tax and she could invest those assets.  Instead they are sitting trapped in a house.  That she's able to eke out some money over the cost of keeping the house doesn't make it a great investment--it should be a far better investment than the stock market to compensate for the greater work of being a landlord and the greater risk of having your assets in one building and subject to tenants who may pay or not, cause damage or not etc.  And there's little likelihood that it's the case.[/quote]

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