Current Residence SFH
Worth: $900k
Mortgage: $275k, 2.625% for 27 years
Capital Appreciation: $250k
PITI: $2750/month
Expected rent: $3500-4000
Rental Townhome
Purchase price: $650k
Mortgage: 5.5% for 15 years or 6% 5/1 ARM.
Down payment: 20%
Expected rent: $3-3500
PITI: $5500/month (15 year mortgage)
The objective is to stay at current residence for 2-6 years while renting out Townhome to benefit from low APR on SFH and sell it before it appreciates to $500k in capital gains. Motivation to buy the Townhome now is the rare opportunity of new construction home in this particular area. Negative $2k/pm cash flow on the rental is a concern, although I can pay both both mortgages and remain solvent and expect both properties to appreciate in the timeframe of expected move.
Another option is rent out the SFH for $3500-$4000 and moved to Townhome right away.
Long term, I don't see holding on to SFH as rental.
Please critique this plan and tax implications of converting a rental to primary residence and vice versa.
PS: I have not purchased the townhome yet.
Purchasing rental for future primary home
Re: Purchasing rental for future primary home
If you just want the appreciation buy a REIT. Managing a rental is more than just collecting checks, and negative cash flow hurts, especially if we hit some years of no or negative appreciation.
Re: Purchasing rental for future primary home
I am purchasing the new Townhome as a forever property, not for the appreciation in the interim.
Re: Purchasing rental for future primary home
Another option is.....simply sell the house and move, and invest your extra money?
Re: Purchasing rental for future primary home
I'm not seeing the complexity being worth it. Buy the new home and move now.
Re: Purchasing rental for future primary home
I don't think your plan works.
I believe you only get the primary house tax write-off (the $500k referenced) if you lived in a house as your primary home for 3 of the last 5 years. Don't quote me on the specifics, but it's something along those lines. Given that, the tax benefit of your plan, which seems to be the primary objective, are really limited to something like two years of appreciation. Going through the hassle of converting a primary to a rental for 2 years and then selling it is, I'm sorry, a bad idea.
I have other reservations about your plan as well, including speculating on real estate price appreciation, purchasing a rental that has negative expected cashflow (real real bad), purchasing a rental without a long-term hold intent, economy of scale, fairness to the tenants, complexity of selling a rental, and so on. I may also be reading too far into it, but I'm also hearing some FOMO in your original post (there will, almost always, be new buildings in the future).
It's very possible that I don't understand your why, or the value of your plan. But, if you're largely trying to buy a new home that you love (cool) but continue to get tax benefits in your current home, I don't think it works as you are hoping.
Happy hunting,
Debt is to personal finance as a knife is to cooking.
- Sandtrap
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Re: Purchasing rental for future primary home
+1
SImplicity.
j
Re: Purchasing rental for future primary home
This makes sense, thanks for clearing things up. I will stick to investing in equities till mortgages till primary residence appreciates to $500k.Tal- wrote: ↑Mon Jun 05, 2023 9:31 amI don't think your plan works.
I believe you only get the primary house tax write-off (the $500k referenced) if you lived in a house as your primary home for 3 of the last 5 years. Don't quote me on the specifics, but it's something along those lines. Given that, the tax benefit of your plan, which seems to be the primary objective, are really limited to something like two years of appreciation. Going through the hassle of converting a primary to a rental for 2 years and then selling it is, I'm sorry, a bad idea.
I have other reservations about your plan as well, including speculating on real estate price appreciation, purchasing a rental that has negative expected cashflow (real real bad), purchasing a rental without a long-term hold intent, economy of scale, fairness to the tenants, complexity of selling a rental, and so on. I may also be reading too far into it, but I'm also hearing some FOMO in your original post (there will, almost always, be new buildings in the future).
It's very possible that I don't understand your why, or the value of your plan. But, if you're largely trying to buy a new home that you love (cool) but continue to get tax benefits in your current home, I don't think it works as you are hoping.
Happy hunting,