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Old 06-10-2015, 02:24 PM
 
2,135 posts, read 3,417,114 times
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I recently got engaged and my fiance and I are looking into purchasing a bigger home. She currently lives in an apartment while I own a condo here in DC. I haven't done an official appraisal yet, but if I went by the estimates online it could be valued at anywhere between 285K to 300K. I bought it for 199K in late 2011, and even though this area is a hot market, I am surprised to see it be valued so high in less than 4 years.

Anyway, this is a debate that I have running through my head and its driving me nuts. Part of me wants to outright sell the place for say 300K, take the $110K in capital gains and put most of that in a pot for a new home. It also doesn't allow me to become a landlord which would be a nightmare in itself.

The second option is taking out a HELOC, keep the home and use the equity to buy a 2nd home. It's more challenging, if I get the place appraised, I would be able to knock off the PMI (which is about $175 a month) and it lowers the mortgage payment. But I would also have to price the condo high enough that it would cover the mortgage + condo fees (it includes all utilities, maintenance, etc) + the credit repayment + trying to make something extra on the side. On top of the stresses of being a landlord.

Any advice is greatly appreciated, I think my mind is made up, but my fiance's dad owns 3 properties and her mom owns an additional one and I just keep going back to that...they seem to be doing OK with everything but I don't see how I could profit by going with the HELOC option. Thoughts?
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Old 06-10-2015, 04:26 PM
 
Location: NC
6,081 posts, read 7,027,359 times
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If you get married before selling the condo, you might not need to pay any capital gains tax, so you would save at least 25K right there.
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Old 06-10-2015, 09:30 PM
 
Location: MID ATLANTIC
7,598 posts, read 17,618,792 times
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Don't ever equate fair market rent with what you need to collect. Get someone to run rental comps and take a sobering look and see if you can live with the most recent rental income showing. As said previously, get married, reinvest your profit and don't worry about capital gains, but do speak to an accountant. And, if you are thinking about buying new, the latest trend (with well known, experienced Realtors) is signing with an agent that will sell your home for little to no commission, provided you use them on your purchase contract (that way you net more from your sale).
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Old 06-10-2015, 09:32 PM
 
6,359 posts, read 7,324,210 times
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Quote:
Originally Posted by DomRep View Post
Thoughts?
Simple. It doesn't sound like you want to be a landlord...so don't become one.
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Old 06-10-2015, 09:37 PM
 
6,359 posts, read 7,324,210 times
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Quote:
Originally Posted by luv4horses View Post
If you get married before selling the condo, you might not need to pay any capital gains tax, so you would save at least 25K right there.
Huh? Maybe you misread something. The capital gains tax, and the applicable exclusion, is based upon the profit, not upon the sales price. As long as the condo has been his principal residence, his profit amount is going to be covered by his individual exclusion.

http://www.irs.gov/publications/p523/ar02.html

Last edited by jackmichigan; 06-10-2015 at 09:48 PM.. Reason: IRS link
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Old 06-11-2015, 08:44 AM
 
Location: Southern California
4,350 posts, read 4,931,746 times
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Sell it to her parents.
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Old 06-11-2015, 08:50 AM
 
Location: NC
6,081 posts, read 7,027,359 times
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He said he would get 110K in capital gains. But reading again, he is only selling for 300K so I did read it too quickly. Thanks jackmichigan for noticing.
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Old 06-11-2015, 10:54 AM
 
6,359 posts, read 7,324,210 times
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Quote:
Originally Posted by luv4horses View Post
But reading again, he is only selling for 300K so I did read it too quickly.
That's easy to do.
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Old 06-11-2015, 10:57 AM
 
28,383 posts, read 67,919,335 times
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First, there is no reason to think that you really could or should use the proceeds from a home equity loan / line of credit to purchase another piece of real estate. Most lenders have SPECIFIC PROHIBITIONS in their loans against this because of the 'domino effect' that happened in the collapse of the real estate prices post 2008.

Second, just because your future inlaws are good at being landlords does not mean that you will be. That said it is probably at least talking this over with them as they probably have some insight into the potential pitfalls / upsides of this. I will caution that it is can be VERY STRESSFUL to talk finances with future inlaws and if you or your bride to be are NOT on the same page about this NOW it may very well make a whole lot of sense to try to figure that out BEFORE you talk to her parents!

Third, PAY NO ATTENTION to ANY "online estimate" -- there are so many way for these things to be wildly incorrect it is SILLY to use for anything other than a "party game". You may be able to compare the recent selling price to condos in your complex to your unit BUT there are MANY factors that will drive the valuation. I have personally seen remodeled condos on high floors in the broaders DC area sell for TRIPLE what an unimproved unit on a lower floor will go for -- there are some "executives" that will expect a very nice view and top notch finishes and they will have their firm pay a HUGE premium to get those things in a timely manner. It can be very very hard to try to "guess the market" and for folks that want a specific view / level of finishes you cannot expect to get the same price even if you are same complex but on a lower floor / different view / older finishes.

In general, the potential to profit from a CONDO is far more constrained than being a landlord with either single family homes or even a modest apartment building. The various factors that make it profitable to rent out single family homes or units in an apartment you own are quite different than having a condo in larger complex. While your inlaws may or may not know that I assure you there are thousands of people that have found out the hard way that real estate is not always an easy path to profits...
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