The Sell Properties and Pay Off Mortgages To Retire is an optional Rule you can include in a Scenario that will allow you to automatically model selling off some (or in rare cases… all) of your Properties to be able to pay off mortgages on the remaining Properties if by doing so, you will achieve your Goal of reaching your Target Monthly Income in Retirement.
Dates, Months or Entire Scenario
You can decide when the Sell Properties and Pay Off Mortgages To Retire Rule runs by selecting a start month or date and an end month or date. Or, you can choose to have it run for the entire Scenario.
Check out the Dates, Months or Entire Scenario help page for additional help on configuring when this Rule should run.
Accounts to Deposit Sale Proceeds to and Pay Off Mortgages from
Select which Account you’d like to be checking to see if there is enough money when combined with selling Properties to be able to pay off mortgages on the remaining Properties to achieve your Goal.
Closing Costs When Selling
Typically when you sell a Property, you will need to pay the seller’s share of closing costs. Depending what is customary in your real estate market, this may include your share of title insurance, closing services fee, any seller concessions you agreed to pay during negotiations and more.
For each Property that is sold using this Rule, enter what percent of the sale price you will be paying as your expense in closing costs. In Northern Colorado, I’d normally suggest about 1% as a conservative, slightly high number. Ask your local real estate professional, lender or tax adviser if you’re unsure.
Real Estate Commission
You can choose to sell your Properties with this Rule using a real estate professional or not. Also, the commission you pay to your real estate professional is negotiable.
Enter in the percentage of the sale price you are paying to a real estate professional on the Properties you do sell with this Rule.
In Northern Colorado, I’d normally suggest using 6% as a conservative number, but ask your local real estate professional to get better estimates.
Depreciation Recapture Tax Rate
Since you’re selling these Properties and not doing a tax deferred exchange to buy another replacement Property, you will need to pay depreciation recapture tax on any depreciation you took on the property while it was rented.
Talk to your tax professional to confirm, but usually depreciation recapture is 25% of the amount of depreciation you took on the Property. If you sell a Property with this Rule, the software will look at how much depreciation you took on this Property and subtract the depreciation amount times whatever you put in for Depreciation Recapture Tax Rate.
Capital Gains Tax Rate
Capital gains tax rate varies depending on how long you’ve owned the Property and what your personal income was for the year. The system allows you to enter a rough estimate of what you think your capital gains tax would be on any gain you have when you sell the Property.
Ask your tax professional for verification, but while you are waiting to confirm your personal situation with them, we might suggest you use 15% for a long-term capital gains tax rate for Capital Gains Tax Rate.
Sample Scenarios Using This Rule
Want to see how this Rule works? Copy the following sample Scenario to your Real Estate Financial Planner™ software and see it for yourself.Copy Scenario into my Real Estate Financial Planner™ Software
J-11 100% Stocks, 30% Savings, 11 Nomads 5% DP, 3 RM/SH - $1,800/mo, Sell By Cap Rate with 2 Accounts, 1 Property, 4 Rules, 1 Goal