i just recently bought a single family home for 29k with cash, with the intent on renting it out for 850 a month. so i go to the bank today to see if i can take out a loan on the property witch they said i might be able to take out 60k on it ,they told me with insurance and property taxes and the loan all put together my payments would be around 830 a month,so that 20 $ im making off the house but my intents are to see if i can buy 2 more houses in the 30k price range.so i finally found sum decent tenants and they want to rent to own , i havnt figured out a final price for the house yet but im thinking around mid 60s so i can pay off the 60k loan if i take it out.then i was thinking that if these people buy the house for 60 and i make 30 off the house im not going to be able to pay off the loan because im worried about capital gain taxes.my ultimate goal is to have about 8 rental units ,i have a investors i talk to but i would like to hear sum other people opions
Hi,
Your kind of putting the cart before the horse as you will not come to a point of realizing capital gains until some point in the future! If you have a bank willing to refinance for $60k cash out, there estimating your properties value at $80k dollars, so why would you sell an $80k property to a tenant who is not closing today for somewhere in the mid $60's?
First I would set up a lease option for your tenants, that ensures your not creating a sale today! The price will be determined at a point either today or in the future depending on how you set it up, for the option you should charge 3 to 6% upfront as an option consideration and you should charge an extra say $100 per month, but grant a $200 per month credit towards there purchase in the future!
Mean while your going to buy 2 more properties in the $30k range, so don’t you think you will have write off’s against real estate the next 3 years, rental income from all three, so let’s say you actually realize a $50k profit from this sale in 3 years, the capital gains in the worst case will be 20% Federal and the state will assess income as earned income at the state tax rate!
So let’s say you have to pay 30% of $50k or $15k dollars, some of this will go against write off’s, carry forward and that current years tax position, your likely to pay less than $10k cash for this position 3 years from now!
Now if your buying two additional free and clear properties using the $60k then you will undoubtable have positive cash flow after expenses, let’s say $600 per month net, so this $7200 per house or $14,400 per year needs to be handled properly, if you save $3330 per year from your positive cash flow, you will have the cash to pay capital gains from a sale and you will still recieve more than $34k gross over the next 3 years!
Sit down with a tax consultant and project a theoretical estimate of position, income, appreciation and depreciation, write off’s and yearly taxes, you really have very little to worry about if you run this as a business and don’t run out and spend extravegantly!
Good luck,
GR
The thing about real estate is that it doesn’t matter if the market is up or down. We make money in the up and the down market. When the market is down you are buying houses at great discounts. This allows you to rent them for huge monthly cash flow. When the markets are up you can do what people call flip houses to make money. Usually when the market is going up people are making more money so you can charge more for rents and make huge monthly cash flow.
Don’t wait for the up market. We need to run our businesses based on the type of market we are seeing.
How a tax deffered exchange on the property? Use the proceeds to purchase another like property and hold the taxes off a while. I am not sure how this actually works but have read about it and in theroy sounds like the solution.
thanks all for the replys,i guess i was putting the cart before the horse as of now my new tentant just want to rent. this is my first investment property so i was just trying to make sure what all i had to pay to the gov and any other hidden cost new investers might not no about . so heres the deal now im just renting for 850 a month and im going to take out a 48k loan thats the max they will give me. my payment with property tax and ins is 570 so im making 280 a month.so now im on the search for another property to fix up then rent out .i really want to take out 60k and try to get 2 property but with 48k maybe ill try and find 1 in the 40k range that wont need as much fixing up .thanks all for all the good advice
bmk2006,
I am having a hard time following your thoughts. Could you please use punctuation and paragraphs?
Thanks.
Furnishedowner
i didnt no i was in english class again :rolleyes
You are not.
But if you are too lazy to use spellcheck or follow basic rules for clear communicating then I can’t bother reading it either.
You post a bunch of jumbled thoughts that look like they just fell out of your brain. Onto the screen. Not a good way to get your questions across.
Furnishedowner
Wow, have the moderator’s hired a spelling/grammar cop?
No. But if bmk2006 wants help, shouldn’t he extend himself a little?
Makes sense to me.
I couldn’t finish reading his post, Gold River must have way more patience.
A clearer post could get more responses of FREE ADVICE.
Furnishedowner
free advice, what free advice did u give. none!!! and i dont want your advice anyhow .thanx to everyone else for the reply