Newbie Sell/Rent/Tax Advice
Allrighty then, time to get my feet wet so here goes............
I have recently refinanced my home for 108,000 @ 3.875% (one year arm) for 30 years. My home appraised for 139,000 and I avoided PMI.
I have recently bought a second home to which we will move in about 8 months. I will not need to sell my existing home I just refinanced, I have the financial option to either sell it or rent it, and that decision basically comes down to advice from season investors here. Here are some facts to consider.....I have lived in my home for over 12 years so all gains (roughly 80,000 would be tax exempt ) from a sale. On the rent side, my home could easily fetch $950-1000 a month, which would net roughly a $350 profit (after PITI) in a fairly stable rental market in my area. My home is in a very stable neighborhood that has enjoyed at least average appreciation compared to surrounding areas. I don't know if the age of my home is relevant, nonetheless, it is 28 yrs old.
What is the prudent thing to do....? Also, what happens if I rent it for three years and then sell it and try to claim full tax exemption (lived in it 2 of 5 years). Will I still have legal claim to that exemption?
I would appreciatte any advice on this matter.
Thanks all!!!
I would Lease/Option your home to a buyer ( aka Rent-to-own).
1. Collect above market rents for 1 or 2 years.
2. Sell your home for full price, estimated future FMV.
3. If your buyer exercises the option within 3 years then you don't lose your tax benefits.
4. None of the headaches of being a landlord.
I would then roll the money into a multi-unit building and let a management company run it for you.
You just got yourself into real estate without many of the landlording headaches.
With a rent to own contract.......how do I financially lock the new renter into the contract. In other words, how do I bleed money from the renter to induce them to the end result - to exercise the option to buy. Is that done, as you say, through higher rents that apply to the purchase price or something to that effect.
As you can see, I have a sharp learning curve to overcome in the RE investment world.
To induce the tenant to buy, some folks give rent credits. Say you charge $1000/rent, and tell the tenant, if you pay by the first every month, $500 of the rent will go toward the purcahse price of the house. Now that is$6000 credit you are giving them a year. So if your lease option is for 1 year, tack your concession on to the end, letting them know that their option to buy the house for $145,000 (139 +6K) is only for one year.
Others take a large non-refundable deposit or "option money". If they don't purchase, the deposit is yours.
I've needed these questions answered as well.
This site is quite helpful.
Thanks,
Gusty