Real Estate Stake While Cruising - Are you in or out?

[valhalla360]

Originally Posted by steffan

I will say that the taxes on the land we built our current house on, which is in the US, went from <$50 a month to >$400 a month when the lot was developed.

I assume you are comparing something like a $10-30k plot of land to a $300-500k house on a plot of land for your tax estimates.

The plot of land doesn't achieve any significant protection from real-estate inflation.

If you buy dozens of plots, you achieve the inflation protection but now your property tax is much higher.

[valhalla360]

Originally Posted by Sailingwithgil

I have question on my mind about having a Very nice lakefront house on Lake Talquil , Florida that is paid for.
1. Can I do a 1031 exchange for a Catamaran without paying Capital Gains on the sale of the house and it is my primary resident.

I believe yes. IRS typically wants bathroom, kitchen and sleeping area to consider it a house...which should be no problem.

As always with internet advice, talk to your tax professional before proceeding.

[valhalla360]

Originally Posted by mako

Since you’re looking for opinions, I’ll throw one in.

Sell and downsize to a small, 2 bedroom apt with near- zero exterior upkeep (hence apt or townhouse). Find a location desirable for short term rentals. Since you’ll be out cruising for months at a time, get it on the AirBnB market with a cleaning crew and manager.

That way you have a home to return to by just blocking chunks of time, your income per day will be much higher than with long term, and you reduce the risk of deadbeat tenants.

Much smarter approach. Typically the home you buy for yourself is not the same as the house you buy to rent out.

Do be careful to feel out the airbnb market in the area. Particularly in tourist areas, the local hotel scene often fights to discourage the competition brought by airbnb.

[mako]

Yes Valhalla, I’d agree that in general I would not want to rent my house out. However, if I were embarking on an extended cruise or were planning on being away from home six months at a time, then I might consider it for the income.

[dannc]

Originally Posted by hpeer

Mako,

That is an interesting idea.

Are there professionals who do the marketing and manage cleaning?

Yes, yes there are.

We stay at a CondoTel,(Condo Hotel) from time to time. Never heard of this until we found one in a very touristy area. The units are owned privately and many, if not most, are rented out for people taking a vacation. A few people live in the units full time. The building has staff at the desk 24 hours a day, just like a hotel, and they handle renting, cleaning, and maintaining the units, if you list through them. Other units have listed with offsite companies who take care of everything.

We have done AirBbB type renting for years now. Both in the US and Ireland with various companies. Never had a problem to complain about. We did have issues with locks, HVAC, and furniture but it was handled. The last house we stayed at was a vacation home that the owners used from time to time. When they were not using it was rented out through a management company that handles everything. Booking, cleaning and maintenance. We had a problem and they had someone there to fix it the next day. A Saturday. In fact, they sent a handy man who could not fix it, then they sent a HVAC guy.

Having a second home on the beach in NC is how many beach homes are owned. The owners use the house from time to time and rent it out when they are not using the home. The rentals are often managed by a company that handle everything.

Later,
Dan

[dannc]

Originally Posted by valhalla360

I assume you are comparing something like a $10-30k plot of land to a $300-500k house on a plot of land for your tax estimates.

The plot of land doesn't achieve any significant protection from real-estate inflation.

...

Depends on location, location, location.

We live in a fairly rural area that is growing. Raw land in a sorta decent location is $15-20,000 per acre and the lot will be around five acres so $75,000 to $100,000. A five or so acre parcel, in a better location, is around $40,000-50,0000 an acre. Lots in a subdivision have prices from $100,000 to $150,000 for 1/3 to 1/2 acre up to $350,000 for 1 to 1.5 acres.

This is not in the city but a rural area. The house we sold in the city has almost doubled in price in the last few years due to demand. It is not a bubble because people are moving here, have been doing so for decades, even in down cycles and they will continue to do so.

The land we own has gone up in value by huge multiples. Family has land in another part of the state and the value has not changed much in value. It is, as always, about location, location, location.

Later,
Dan

[David B]

Originally Posted by KevinE

We are getting ready to go cruising again and I'm curious how many of you full time cruisers have maintained a stake on land or have you just cashed out and will worry about it when you return? Our biggest worry is if we sell is inflation (due to COVID money printing) and not being able to afford to get back in the market when we decide to be lubbers again. I am taking early retirement (55) and our problem is we have too much equity tied up in our home. We have been looking at downsizing but the market is so picked over (and IMO, overvalued), I am almost at the point that we just sell, go cruising and cross our fingers that some sanity will return to the housing market.

You could well argue that with the inflated market, now is the time to sell. Then via other investments, you should be able to see a conservative return of some 8% which would work especially well if the real-estate market comes off in the near future.

Then again, it could just keep climbing, and you are shut out.

My crystal ball is far from reliable, but we have just sold some substantial commercial real-estate thinking with the business climate as it is, we have seen the best growth for now, do not want the hassle or leasing out, and assuming investments continue to perform, we will be fine for the remainder of our lives. Time will tell however. If life was ever a gamble, it is now!

[valhalla360]

Originally Posted by dannc

Depends on location, location, location.

We live in a fairly rural area that is growing. Raw land in a sorta decent location is $15-20,000 per acre and the lot will be around five acres so $75,000 to $100,000. A five or so acre parcel, in a better location, is around $40,000-50,0000 an acre. Lots in a subdivision have prices from $100,000 to $150,000 for 1/3 to 1/2 acre up to $350,000 for 1 to 1.5 acres.

Certainly, you can buy more land but if you are paying $350k for an acre, you probably aren't paying $50/month in property taxes.

Usually, the property tax is proportionate to the value of the property (including any structures). If it doesn't include your primary residence, the tax rate is typically significantly higher.

[valhalla360]

Originally Posted by mako

Yes Valhalla, I’d agree that in general I would not want to rent my house out. However, if I were embarking on an extended cruise or were planning on being away from home six months at a time, then I might consider it for the income.

Vet any renters very well. Generally, renters have a multitude of legal protections that make it expensive and time consuming to remove them if they make problems. If they trash the place (where will all your personal possessions be?) don't be surprised if they have no assets and are thus judgement proof in terms of paying for damages.

Buying multiple less expensive units specially for rental purposes averages out the risk. It's less likely all of the rentals would go bad at the same time and you don't have the same emotional attachment.

Not saying it can't work to rent your personal home but it comes with additional complications and risks.

[mako]

Hence my leaning towards short term rentals. I’ve been burnt too many times with rental properties even when managed by professional companies.

[mvweebles]

I think OP was asking about concern about affording a home if he sells now and returns after cruising. For pure real estate as an investment, there are many options, including REITs that are very easy with low holding costs and very liquid.

[valhalla360]

Originally Posted by mako

Hence my leaning towards short term rentals. I’ve been burnt too many times with rental properties even when managed by professional companies.

If it's an airbnb type deal, that's a bit different (with it's own set of pros & cons) but still need to be careful they don't become defacto long term renters. Make sure to check the local rental laws...sometimes as little as a month and they are considered residents with the protections that entails.

[dannc]

Originally Posted by valhalla360

Certainly, you can buy more land but if you are paying $350k for an acre, you probably aren't paying $50/month in property taxes.

Usually, the property tax is proportionate to the value of the property (including any structures). If it doesn't include your primary residence, the tax rate is typically significantly higher.

Property valuation and tax was not the point. The point was that raw land can be a hedge against real estate inflation. The cost of land is very often a major portion of the value of a house.

Later,
Dan

[bobnlesley]

Based on our (UK) experience, we were fortunate to get some fantastic pieces advice - from another cruiser - before we began, with regard to renting property while you're away sailing:

Engage and pay a Management Company/Agent to look after the property and rental for you; flying back from hundreds, even thousands of miles away to sort out a problem is a PIA and will cost you far more than the Agent's cut of the rent.
Don't worry about vetting the renters, it's the Agent that you need to vet and having made your choice, don't agree a 'standard' contract which pays them 1 months rent whenever the tenant's change; instead pay them an extra couple of percentage points on their monthly fee.
Having been advised by your Agent as to what the going rate is for your property in that area, set your rent at a few percent (£50-£100/month) lower than that; you will get a wide selection of tenants to choose from as they won't find a better bang for their buck!
Be 'nice' to your tenants; ensure the place is freshly decorated and clean when they move in, fix things promptly when they break and be reasonable with regard to what's fair-wear-and-tear when they eventually do leave - every departing tenant supplied our subsequent tenant.
These are NOT costing you money; an under-priced property, managed by an Agent who gains nothing from the tenants changing, means that you'll get good tenants to begin with and they will only be moving for good reason, not just 'a better deal'. It's not about getting the most money in each month, but in keeping acceptable money coming in EVERY month and not having any big refurbishment bills when they do leave. Our place was rented for ten years, we had three tenants in total and the place sat empty for perhaps four weeks in total during that period.

[valhalla360]

Originally Posted by dannc

Property valuation and tax was not the point. The point was that raw land can be a hedge against real estate inflation. The cost of land is very often a major portion of the value of a house.

Later,
Dan

It's only a hedge if the holding costs don't eat up the inflation increase...hence must be considered.

A plot of land paying <$50/month in property tax is not going to do much hedging if the end goal is to provide a $300k house (in today's dollars).

On the other hand if you keep a $300k house and are paying $15k/yr in property taxes...after 10yrs, you need an increase of 50% just to hold value prior to inflation. In a high tax state like NJ, property taxes can easily be in that range.

Also, it ignores the risk of a low inflation environment. You still pay the property taxes even if inflation is low.