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Pondering Sale vs. Rental
Posted on 8/19/13 at 1:11 pm
Posted on 8/19/13 at 1:11 pm
I know we get a lot of these threads, but my situation is a bit different.
We are moving from House 1 into House 2, which is an older home on a beautiful lot where we plan to build a new house in the next three years.
House 1 is on the market in a desirable area (River Ridge) but based on the interest I've gotten it will probably not sell for much of a premium over what we paid for it a few years ago. We have a great mortgage at 3.5% on House 1 and will have the same mortgage for House 2.
My scenario has always been that if I can get a 5% premium on what we paid for House 1, I would sell it.
We don't need the cash/equity out of House 1 until we start the build process in a few years. I am thinking if I cannot sell House 1 at a premium, I should rent it. The rent should cover the note, interest, taxes and insurance.
I guess my question is: are the tax benefits of rental property worth it for a year or two? I know you can depreciate the building, take deductions for the interest and insurance, and maintenance.
Or should I just take the equity and stick it in a savings account?
We are moving from House 1 into House 2, which is an older home on a beautiful lot where we plan to build a new house in the next three years.
House 1 is on the market in a desirable area (River Ridge) but based on the interest I've gotten it will probably not sell for much of a premium over what we paid for it a few years ago. We have a great mortgage at 3.5% on House 1 and will have the same mortgage for House 2.
My scenario has always been that if I can get a 5% premium on what we paid for House 1, I would sell it.
We don't need the cash/equity out of House 1 until we start the build process in a few years. I am thinking if I cannot sell House 1 at a premium, I should rent it. The rent should cover the note, interest, taxes and insurance.
I guess my question is: are the tax benefits of rental property worth it for a year or two? I know you can depreciate the building, take deductions for the interest and insurance, and maintenance.
Or should I just take the equity and stick it in a savings account?
This post was edited on 8/19/13 at 1:13 pm
7
Posted on 8/19/13 at 1:30 pm to Rev1897
would the rental rate only allow you to scrape by the payments or would there be some extra cash to cover repairs and possibly even additional income? In general my opinion would be that allowing someone else 2 pay your principal could never be a bad decision. What would the rate of return be. Where on the amortization schedule are you? Meaning how much of the rent payment is principal
Posted on 8/19/13 at 1:42 pm to Rev1897
Dp
This post was edited on 8/19/13 at 1:43 pm
Posted on 8/19/13 at 3:06 pm to Mr.Perfect
I would probably make about $100 a month profit.
Posted on 8/19/13 at 3:25 pm to Rev1897
Not sure where I am on the amort schedule. Had the house for going on 4 years and a 15 year note.
Posted on 8/19/13 at 3:35 pm to Rev1897
A big question would be, "Is $100/month worth the time you will need to invest in the property, as well as the headache that will more than likely come along with it?"
Posted on 8/19/13 at 3:42 pm to Rev1897
quote:
I would probably make about $100 a month profit
Is this taking into account maintenance/slush fund for appliances/AC breaking?
If they can cover a 15 year note, and still have some cash left over, I'd definitely consider it, since you are 4 years into a 15 year note, so a decent amount is building up equity. If it was a 30 year note, I'd say it wouldn't be worth the effort. How much equity/month on average would you be getting over the next three years?
Posted on 8/19/13 at 3:43 pm to Rev1897
Consider that your equity might get taxed as capital gains if you wait too long and sell as rental. Also, depreciation is recaptured upon selling. Landlord insurance is more costly as well
Posted on 8/19/13 at 7:59 pm to Breadcrumbs
Thanks everybody. All good thoughts. I have about 40% equity in the home right now.
Posted on 8/19/13 at 10:30 pm to Rev1897
Meh. Unless you plan on keeping the rental property long-term, I would sell it now.
Posted on 8/19/13 at 11:37 pm to LSUAlum2001
Well that's like, your opinion man
But seriously lsualum...can you support that? In my opinion the case is getting stronger for keeping the rental.
But seriously lsualum...can you support that? In my opinion the case is getting stronger for keeping the rental.
Posted on 8/20/13 at 7:37 am to Rev1897
By year 4 of a 15 year mortgage, you are over a 2:1 ratio of principle:interest out of your total mortgage payment at that rate. At 7 years, it's at a 3:1 ratio. I'd rent it out.
Posted on 8/20/13 at 2:09 pm to Rev1897
Posted on 8/21/13 at 6:06 am to Rev1897
Talk to a CPA. I think once you convert that property to a rental, you lose the ability to sell it and keep the gains tax free for reinvestment into your new property. Take the quick nickel vs. the slow dime.
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