I have a confession to make.

Despite swearing off buying more property in an expensive coastal city like San Francisco, I recently submitted an offer for a single family home. Why would I do such a thing, especially given I had just  gone through the difficult process of selling a single-family home rental the other year?

Ego and maybe a little bit of real estate addiction.

In 2014, we downsized from a 4 bedroom, 3.5 bathroom, 2,300 sqft house to a 3 bedroom, 2 bathroom, 1,920 sqft house with a small office. Not only that, we downgraded from a well-known and expensive neighborhood to a relatively unknown neighborhood.

We took our ego squashing quest even further by buying a Honda Fit as well. With simple clothes, a compact car, and a modest house, we successfully completed our mission to go completely Stealth Wealth. It felt wonderful being nobodies!

Then things started to change once our son was born.

The following is a guest post by Bill Lanting | Vice President, Commercial Debt, RealtyShares. I met Bill over dinner and asked him to share his wisdom about triple-net properties because such investments sound attractive to someone who doesn’t want to do much managing, remodeling, or maintaining. 

Savvy investors seek the most return for the least amount of effort. Therein lies the appeal of triple-net properties, which offer the chance to work with major commercial tenants while at the same time handing off some of the biggest responsibilities any property owner will face.

Triple-net may align with your goals if you’re seeking a quirky, little-known investment type that is better known for reaping rewards than requiring repairs. If this resonates, read on to find out if this is the right asset class for you.

So far, I’ve eliminated most stressors due to financial independence:

• Commuting to work
• Working with people I don’t respect
• Sitting in mindless meetings
• Working in an occupation that started getting boring after 13 years
• Dealing with unreasonable clients
• Worrying about how to afford raising a family in an expensive city
• Having to respond to endless e-mails
• A rental house with maintenance issues that consistently attracted rowdy tenants

My last stressor I can eliminate is getting rid of my SF rental condo I bought in 2003 for $580,000. I dislike working with the HOA board, who is made up of grumpy old retirees who seem to have nothing else better to do than to grandstand. They hate landlords. They also hired an incompetent property manager who only responds to the board, instead of all homeowners they work for.

In 2017, a similar unit across the hall sold for a surprising $1,360,000. The unit had about ~$40,000 more in upgrades than mine due to a remodeled kitchen, but everything else is the same. The buyer was a 26 year old associate in banking and his girlfriend.

The problem with selling my property is that I would pay a 27% marginal tax rate on the gains. We’re talking a potential ~$200,000 tax bill. Further, I’d lose out on $4,200+ a month in rental income and a place for family to stay close by if ever needed.

One solution to minimizing the tax bill would be to move back in tomorrow, live in the condo for the next two years in order to get the $500,000 tax-free profit exclusion, and then sell. Some of you real estate investors are likely facing the same dilemma. Let’s talk it out.