I am trying to formulate a strategy. I want to invest in my first rental property some time in the next 12 months. However, I need some help figuring out how to manage my situation to allow me to do so. Here is the deal:
We relocated and a relative is renting our former home from us but at a loss of approximately $800/month to us. In effect, we are subsidizing the rental.
Selling our original house or even putting it on the market is probably not realistic till at least next Spring.
In our new city, we are renting on a short term lease for another $1000/month.
We are considering purchasing a home in our new city.
My question is whether we should wait to sell our former home before buying or go ahead and buy our new home and wait till the spring to sell our former home?
Can you afford two mortgage payments ? Will your market support a higher rent for your old home? How long is the lease your family member has on your old home?
Can you afford two mortgage payments ? We can but it would hurt. Doing it at a loss as we are now is less painful, in fact, it keeps our “cash out” for housing just about equal to what it was before the move.
Will your market support a higher rent for your old home? I don’t think so. It’s a situation of “if you can afford to rent for that much, you can probably afford to buy”.
How long is the lease your family member has on your old home? We have no lease but I am considering creating an LLC and declaring the rent as income. If I’m not mistaken, I think I can write off the loss…maybe?
You are already invested in your first rental property. You don’t really need an LLC to claim your prior home as a rental and to claim all the tax benefits of rental property ownership.
The question you need to answer is whether you want to keep a negative cash flow property in your rental portfolio. You suggest that this will always be a negative cash flow property, so maybe yo really only have one option. Unless you can turn the property into a positive income generator, I suggest you divest this property from your portfolio.
If you are upside down you can keep collecting rent while you wait for the market to improve, but you do want to sell within three years of the date you converted the property to a rental. If you can sell before you clock three years of rental use, you still qualify for the capital gains exclusion on the sale of a primary residence.
I know this was once your home and you are emotionally invested in it. Now is the time to make good business decisions, not emotional ones.