I have been investing for almost 3 years and plan to make some major changes next year. I thought I would submit my plan and have it “bulletproofed”. Naturally, not all details can be included, but I hope to give you a decent overview. I’d appreciate your feedback.
Own 3 homes. 1 is the residence, 2 is rental with cashflow, and 3 is rental at breakeven.
Motivation - very high appreciation is past three years with hot sellers market cooling. Larger and lingering inventories will soon create an attractive market for me as an investor. Also, I want to eliminate a large amount of personal debt.
Plan
Sell personal residence tax free with $90K profit
Move into break even renatl (stay two years, repeat)
Sell cashflow rental for $80K profit (will soon need maintance that will eat up cashflow for next 2 years). Cap Gains taxes acceptable.
Pay off all bad debt except primary “new” residence mortgage (nice low interest rate)
sounds good. have you considered a 1031 tax deferred exchange on the rental? The only problem with that is finding properties in today’s market that are cash flow breakeven to replace your current property. The good thing is you can probably buy 2 or maybe 3 properties with the equity in your one.
I did consider the 1031, but I dont want to reinvest the entire funds. I do need to pull some cash out.
Frankly, (I know this will give some of you hiccups) I am not really opposed to paying 15% cap gains. I figure I have paid a lot more in income taxes over the years - Cap Gains is a deal in comparison. Also, I have a few other strategies that help me reduce my taxes so overall my tax picture is favorable.
There are definate scenarios where paying 15% cap gains makes sense is far bettere than the old 28% rate. O fcourse, if you live in a tax hungry state like I do (Calif), ther is no cap gain rate so I pay another 9.3% to Calif.
Since the capital gains rate is 15% and not 20% for the time being (those reductions are still not permanent) and eventually you’ll have to pay tax even if you 1031 it (you’re just delaying the inevitable) I don’t disagree with taking the profits now and not deferring them. The plan sounds good and the idea of selling your primary residence every 2 years is a sound one.