Should I Sell?
All,
Thanks in advance for reading my long message and helping me out. I am currently in the process of trying to sell a property, not by choice, I am finacially strapped right now. I have two properties, one condo and one townhouse. I have only owned the condo for less than a year and will have to pay capital gains on the profit so I am currently trying to sell my townhouse. Murphy's law has shown it terrible face and now I don't know if I made the right decision. In addition, I just found out that there is a huge shopping center being built right next to my townhouse that is due to be completed in Spring of 2005. I would think that this would increase the value of the house but I fear that even with the shopping center, prices may fall once interest rates go up. I am in northern VA and the prices have doubled in the past 3-4 years so it seems like a bubble that is about to burst. I have three options as I see them and would like to get some advice on how I should proceed.
1)Continue to sell the townhouse even though the value may increase once the shopping center is built but the value also has a chance of going down once interest rates go up.
2)Sell my condo and pay the capital gains tax on ~$50K profit.
3)Get a home equity loan and move back into the townhouse and use the loan to pay bills until I get the condo rented out
:-?
So what is the cause of your currrent cash problems? It sounds to me like you are paying the mortages on both these properties without income from either. Sounds like you are living in the Condo.
My advice, rent out the townhouse to increase your cash flow. If you need more money in the short term then you can either re-finance the TH or take out a Home Equity Line.
The shopping center is as likely to hurt residential property values in the short term as to help them depending on how close you are, etc.
Thanks for the feedback, I really appreciate it!
That is exactly the problem. I can't afford to pay two mortgages until I find a renter. The market to sell in this area is much better than the rental market because of the interest rates. Also, I was thinking of either opening a franchise with some of the profit or buying some investment property.
It seems like it would be harder to rent out the townhouse than the condo, plus I want to try to get out of the condo. I would like to maybe use part of the money to buy another primary residence and rent out the condo.
The shopping center is going to be about 1/4 to 1/2 mile away from the townhouse.
Any additional feedback based on this is much appreciated! Thanks!
Angel,
The market in Loudoun is definitely a sellers market and not a rental market, at least not right now.
The good news is that because of the extreme lack of land and continual influx of people to the area, the market still looks good for the next few years. Interest rate increases will probably slow the appreciation, but property values should hold.
On the other side of the coin, remember that when the interest rates go up and fewer people are able to afford their own house, the rental market will return again.
Noone can tell you exactly what to do since they are not in your shoes. You have to look at where you see the most value in your money and then decide your next step.
Thanks mc!
I agree about the markets. I am starting to think at this point that I should not sell, I should just move back into the townhouse and rent out the condo. Take out a line of credit on the house and use that to pay both mortgages until I can find a renter.
Think ahead to the taxation issues as well. You already have almost one year in the condo. Can you stick it out for one more to qualify for the 2 out of 5 needed for a tax free sale?
Make sure you write out all of your options to see which one will net the highest gain[ Edited by mcl8190 on Date 06/03/2004 ]
Great point, I think it would be best to suck it up and stay there for another year. The townhouse is definitely going to be harder to rent though but it would be worth it in the long run.
Angel,
If paying the tax on 50K profit is the problem, why don't you refi with cashout for the whole amount and then sell it for that amount? So if your property is worth 100K and you have 50K profit (which means your current mortgage is 50K), just refi for the whole 100K or as close to it as possible and then sell it for 100K to pay off the loan....and the cash out is tax free since its a loan.
That is great advice, thanks Dan!
Actually that is not good advice at all. The taxes you pay are not based at all on the outstanding loan amount...they are based on the purchase price.[ Edited by kevinlangley on Date 06/03/2004 ]
Thanks for correction and heads up Kevin!
1. Consider a lease/option deal. Find someone who wants to buy but can not do so right now. Not all of them exercise the option so you might end up keeping the property but will have better cash flow.
2. Drop the rent. At some price you will rent the place. Borrowing in the short term will likely cost you more when you figure the lost rent and the interest on the loan to cover the lost rent.
3. Sell if you like. Pay the tax. It will not be that large compared to the negative impact of no cash flow and possible credit damage. You will put cash in your pocket and have less to worry about.
I think the real problem is you are not thinking clearly, have not done your homework and are thinking short term when RE is a medium to long term investment.
Slow down a little, get it sorted in the short run and then really study more so you can better align yourself with the market forces. Remember, if you drop the rent by 10% that is less then the cost of leaving the place vacant for 1 month.
John
[addsig]
I would love to find someone who like to do a lease option deal but I have read that these are not easy to come accross.
I will be happy to drop the rent but I don't want to take too much of a loss. Even with dropping the rent, it will still take some time to find renters in the area.
I prefer not to sell but if I do which place are you suggesting I sell, it sounds like you are suggesting the condo.
What do you mean by not thinking clearly or done my homework? I have purchased books on RE investing and I have joined this site in hopes of gaining more knowledge as well. I understand it is not a short term deal, I am trying to be in it for the long haul but I am strapped right now. I have 3 homes, one that is vacant right now so I am paying two mortgages which would not be a problem but my boyfriend lost his job recently so we only have one income to pay for 2 mortgages and living expenses. Plus, I want to open a business in the near future and quit my job. Therefore, what I am deciding in the short term is going to have a big impact on the long term which is why I am having this struggle.
I really appreciate the advice but I feel like I am not being naive and I understand the market forces. However, in any investment, nothing is guaranteed and you are always going to have to take risk that no amount of studying can mitigate. If you do have any suggestions on good material to read I would love to hear them.
Angel and Kevin,
Yes you do pay annual property taxes on the purchased or assesed value, but I was refering to the capital gains tax....the tax that Angel was worried about. If the house is refi'd at 100K...yes there will be higher property taxes going into escrow account (as most mortgage companies do it), but it will wash out after you sell the property and the buyer will take part from escrow to pay for the tax and part will pay themselves...based on the part of the year you live in the house. Capital gains tax will be almost eliminated if you can do the 100% LTV cash out loan on the property because the capital gains tax is when you sell the property...so when you sell the property and the same price as you borrowed...there are no capital gains...plus the interest on the whole amount is tax deductible. SO..in summary...capital gains tax goes away, property tax does go up...but if you sell it immediatelly it almost non-issue, but for the time you live in the house after you refi and until you sell it, your monthly payments will be higher (since the loan increased and the property tax increased, and may be the mortg insurance increased)...but you can also off set that by refi for an interest only loan where you can get it with like 3-4% since you are not planing to build equity in the property anyways.
I hope that explains it a little better.
Dan
Hi:
As you know I am right down the road from you and I for one have not seen ANY slow down for townhouse or condo sales. In fact, multiple offers and over list prices are still common. We have gotten on the coat tails of places like Manassas and I too thought there would be a slow down. Right now is a great time to sell (I liken the real estate market to the stock market)...we have reached new highs and now would be a good time to cash in...IMHO Although close shopping is a plus for some, ones privacy is much more important to many...use the new shopping as a plus to sell...again to some it may be a blessing (no vehicle for example). However, once the building commences, dust and the unknown could play a big part in having to settle for less...take the money and reinvest in a better scenario (something that has cash flow already established). Just my 2 cents...Good Luck...craiggans