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If only doing this was as easy as the "experts" say it is. There are rules in the lending world that pertain to how and when you can account for the rental income you earn each month. Just b/c you rent your old home for 1500/month doesn't mean you are entitled to claim that entire amount on your next loan application.
From my experience, if you have a lease in place you can generally claim 80% of it as income with the 20% figured as vacancy and maintnance. But of course each lender is different.
We would NEVER rent out our home. There is too much money invested and time and effort, to let someone come in and screw that up. Besides, we have been landlords...never again. It is not worth the hassle.
Thanks for the suggestion, however. Just not our thing.
We would rather lose the new house than let this one get trashed by tenants
And what you'll see now is that lenders will follow GSE guidelines more strictly now and you will be able to use 75%. Some lenders may not even count any of it if you don't have 2 years of landlord experience.
Here's an idea StJoeFanatic. You absolutely love the home but don't love the maintenance anymore. Since it appears you are going to take a big hit on the selling price, pull your house from the market and put aside money into a "maintenance" fund of $5 - $10,000. Pay a trusted handyman/woman to do the work (you can probably find one through friends, coworkers, church (?), clubs, etc.). You help out a small business owner, you're going to lose at least that much if you sell right now, and you get to relax a bit more.
Although renting your house out is not your first choice, and you have much emotional attachement to it, you should consider this: you cannot claim capital losses on your personal home, but you CAN on rental property. IF you are going to take a loss on the house, you can deduct those losses if it is a rental property. We had a similar situation about 10 years ago - could not sell the house for what we had invested in it. Ended up renting it out, to absolutely wonderful people thank goodness, then selling to someone else for a $10,000 loss, which turned into $16,000 in income tax savings. I am not a tax expert (yuck!) which is why we have a CPA do our taxes. He's worth every penny he charges us.
I was also very skeptical about renting. An agent called us about a family relocating that wanted to rent in the area first. They had excellent references and turned out to be a godsend.
I realize you love your house, but it really is a business/financial transaction. In the end - you hopefully will end up with what you really want - that new house that doesn't need the constant upkeep of an older home.
Best of luck!
IF you decide to rent out your home, it is true that you can claim expenses and depreciation on the home and capital improvements. However, when you sell the home you're going to have a recapture of depreciation. Plus, unless you've lived in the home 2 consecutive years out of the past 5 years, then you'll lose your $500,000 capital gain exclusion. Now if you end up selling for less than you paid, obviously that's not going to be an issue (and you can actually claim the loss on an investment property), or if you only rent the home out for a year or two you'll be okay (except for the recapture of depreciation). StJoeFanatic, sounds like you're not wanting to take that road, anyway, but if you are considering it be sure and meet with your CPA first. It could be to your advantage, or not, depending on your long range goals.
Have the people looked at it yet that made the special trip to see it? How did that go? Please keep us all posted.
Thank you all for your kind suggestions. However, I must reiterate, we are NOT going to rent out our home. Trust me when I say, that in our town, no one is going to "rent" a house for as much as our mortgage payment is, and we cannot afford to take less. Also, with that said, we would NEVER run the risk of damage to the home that would need to be fixed before selling again. Too much effort and money went into the first time to go down that road again. So, thank you, but no thank you.
We had a good open house yesterday. The relatives of the people from out of town came by and were blown away. Said it is "just like their family". The folks from out of town will be here this coming Saturday morning! Cross your fingers.
Also, at this open house, we had a family that actually asked for a contract to use to make an offer on the house! However, it would be contingent upon them selling their current home, which is not yet on the market, and knowing how bad our market is, we doubt there is anyway they will sell and close before our deadline...but, you never know!
So, at least things are looking up. I certainly appreciate your inquiry and promise to keep you informed!
Just wanted to post an update. We SOLD OUR HOUSE!
They were people from out of state who flew in after e-mailing back and forth many times in advance.
We close mid-September on our existing house and close on the new one a week later!
I am so excited and just wanted to say "thank you" from the bottom of my heart for all the support and comments you all provided.
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Sold!!!
