I received a comment on one of my blogs, it said:

“Good analysis! I like your blogs! Are the people you mentioned in your column about people who invest in single family homes as rentals unloading?”
- Emil Heitner

My response is, thank you for the kudos. Much appreciated.

To answer this question: The most savvy investors of the lot already have sold off –you probably know a few of them smart ones – and they are enjoying new-found income, new depreciation basis and security. That is, if security ever really exists, of course.

Compare a paid off $800,000 home, falling in value, yielding $36,000 in annual rent, less taxes, less insurance and yes, trash, repairs and maintenance and time and effort and tenant issues and … and … and …! with $60,000 a year in income and a new depreciation basis. Big duh! (In 5 years you LOSE more than $100,000 in income (which is covered by the new depreciation, so the loss is more like … $150,000). Nice life if you can easily afford to give away that much.

Worse: if that same home has $400,000 in a loan it is probably breaking even BUT the reverse effect of leverage means that if the property value declines $100,000, 25% of your equity is GONE. Not nice, eh?

Posted By: Tom Verkozen