To sell or not to sell...... - Posted by Rob L

Real Estate Investing
#1

Posted by TomC (Md) on February 26, 2001 at 15:33:14:

Sell it!! The personal residence exclusion is too good to pass up…I wouldn’t pass up the opportunity.

But the real question is “How to sell it?”. (You don’t mention if you have any personal debt that you should retire, so I will pretend you don’t.)

Either sell it outright to a buyer with conventional financing and use the tax-free profits for another investment…

or

Sell it with owner financing. If you sold it for $300K with 10% down at a 10% loan rate for 30 years, you have a secure investment that would:

Have $30K tax-free in your pocket
Receive a payment of $2573 ($2370 PI + $203 TI) per month.

You would then pay out the $1467 to your mortgage co which leaves you a profit of $1106 per month.

This will be treated as an “installment sale” by the IRS. When you sell your personal residence via installment sale, you pay income tax on the interest you earn, but not the first $250K of principal payments! Of course, consider that the first 10 years the payments are mostly interest and therefore taxable.

The second option gives you a good income without directly managing the tenants, $30k to invest in more properties and avoids cap gains tax on the sale of the property.

Just my $.02

TomC

#2

To sell or not to sell… - Posted by Rob L

Posted by Rob L on February 26, 2001 at 15:13:46:

For the life of me I can not come up with an objective analysis as to wheter or not I should sell one of my properties. Can someone here shed a little light?

Here are the facts:
2 family in Bergen County
Rental Income: $3050/month
PITI: $1467/month (Taxes are a low $2445/year)
Loan Balance: $170,000 @ 6.875% on 30 year
Older home (built 1928) that needs, at most $10,000 in minor repairs/upgrades

Rental market is strong here. I should have little problem raising rents $50-100/month each year.

I can sell and still be eligible for capital gains exclusion as I lived in the house from 4/95 thru 10/00.
If I do not sell within 1.5 years I’ll miss out on that.
We are still in a sellers market and I know I can get $299-309,000 for it.

So what would you do? Take the $130,000 to $140,000 in equity tax free and reinvest it? (Either in some flips &/or in another rental property) Or just hang onto the property given the likelihood of:

  1. Increasing Rents
  2. Equity build
  3. appreciation
  4. Tax benefits

Thanks all!

Rob

#3

Re: To sell or not to sell… - Posted by Rob L

Posted by Rob L on February 27, 2001 at 10:54:27:

Thank you one and all for your very helpful comments.
This site is a tremendous resource thanks to your contributions.
If you guys were in NJ I’d buy you a lunch!
Rob

#4

You did say 2 family…didn’t you? - Posted by AMP

Posted by AMP on February 26, 2001 at 20:15:16:

Rob,

Not trying to rain on the tax free parade, but…

it sounds like you might have lived in 1 side (or 1 half) of a 2 family house. If you lived in the entire house and didn’t rent any part of it, then I’ll defer to the previous posters.

However, if the other side was rented then you’ll only be eligible for the personal residence tax free treatment on 1/2 (or whatever the % of the property is not considered the rental portion) of the gains.

The other half would be treated just like a regular old rental property. Of course, you could 1031 the rental half of the gains into another like-kind property.

In the end, you end up with $75K tax free and $75K in taxable gains or for use in a 1031 exchange. Still not a bad spot to be in.

Best of Luck,
Andrew

PS - I’m not an accountant, so double check my analysis to be sure!

#5

Sell - Posted by Dave T

Posted by Dave T on February 26, 2001 at 19:17:52:

I would sell and take the profits tax free. You could always invest your profit into one or more rentals and enjoy the same cash flow you have now. If you wait, and sell later, your profit will eventually be taxed. Take the tax-free profit now while you have it available.

One note: you actually have three years to complete the sale of your principal residence and still qualify for the capital gains exclusion. From the information in your post, you appear to give yourself only two years to complete the sale.

#6

Re: To sell or not to sell… - Posted by Rob L

Posted by Rob L on February 26, 2001 at 16:35:01:

One clarification. Although I collect $3050/month in rent I also pay all of the utilites so I actually net $2780/month.

#7

Re: To sell or not to sell… - Posted by Rob L

Posted by Rob L on February 26, 2001 at 16:34:56:

One clarification. Although I collect $3050/month in rent I also pay all of the utilites so I actually net $2780/month.

#8

Re: To sell or not to sell… - Posted by jason (kcmo)

Posted by jason (kcmo) on February 26, 2001 at 16:34:46:

hmm… 1500 a month cash flow and tenants or 140k CASH?? tough choice, but cash is king. personally, i would sell it and buy a few beaten tech and telcom stocks. give it a year or two and you could easily see 50-100% increase, if not more. remember…dont fight the fed. after every recession or market decline (for the professionals) is an upturn, eventually. hell, invest 100k and use the 40k to help spawn more investment deals to make more CASH.

#9

Re: To sell or not to sell… - Posted by Redline

Posted by Redline on February 26, 2001 at 15:44:04:

Just curious … where in Bergen County NJ are you getting those rents and property value with those tax rates? (there’s only 1 or 2 places I know of!).

RL