Posted by Ed Garcia on January 14, 2001 at 12:04:30:
There are a couple of ways you can do this. But before I tell you my answer Rachael, I want you to make sure that the lots are not on the same parcel as the house. If so, then you would have to sub-divide it. The reason I ask is because it’s a little unusual for FHA to finance the separate lots, if they’re not attached. You also mention that you would like to turn the house into a rental and that you would move if the house would rent with a positive cash flow. Rachael, with that thought in mind, since you are unattached to the house and just see it as an income stream. My suggestion would be to sell the house to pay off the mortgage, and keep the lots free and clear. You can build on them or sell them at a latter date.
Rachael, I’m sorry to say that I don’t know how good of a buy you made when you purchased the house from your landlord, so if you don’t have enough equity to do my first suggestion, then yes, sell off the lots to pay down the loan, so you can refinance it to lower the payments. You’re going to have to check with a CPA or your account for the tax ramifications, but yes you will be taxed.