Real estate question/scenario for the pros

[yz450mm]

I'll try to keep this as brief as possible.

My daughter's mom and I each own our own separate homes, but have been looking to combine things for the last year or two.

Our list of requirements is very extensive, to include large horse property, a shop for me, built-in pool and spa, an office, keeping our daughter in the same school district, and a kitchen that she loves. We have looked at many, but none fit the full bill. Today we found the one that is absolutely perfect in every way, and it happens to be a friend of a friend that is selling the house. A handshake deal was done, and all parties are ready to move forward.

Her house: 2300 ft, four bedroom three bath, pool and spa, half acre lot. Positive equity is 240k.. Rental net income would be about 1k.

My house: 3,700 ft, 5 bedroom 3 bath 1450 ft attached eight car garage, separate detached 350 ft garage, almost 1 acre. Equity is around 300k. Net rental income could be $1,500 according to my realtor. The kicker on mine is that I've only owned it for 18 months, so capital gains will get me.

So here's the question, do we sell both, rent both, or what combo? According to most on here, being a landlord in California sucks balls. So just sell and invest the money? Take the hit on Capital gains, or can I avoid it by putting that money down on the new house? We would much rather use the sale proceeds from one of the houses to pay the down payment, but if that doesn't happen it's not a deal killer.

Money in the bank is always good, but so is real estate on the books. Not sure which is more desirable at this point...

 

[THE WIDGE]

Sell hers if she has no capital gains. Sell yours in 6 more months to get at least a 250k exemption if single or 500k married,

 

[CSmith]

No expert here but depending on new property you are looking at purchasing you could do a 1031 exchange? More experienced can chime in. But essentially sell hers and take profits with no capital gains and sell yours and roll the profits toward new property.

 

[lbhsbz]

Where are these houses located?

 

[HB2Havasu]

Wait I’m cornfused. You want to buy a house together with your ex-wife? Did I read that correctly? If so, that’s a really really bad idea!!

 

[satellitemike]

Wait I’m cornfused. You want to buy a house together with your ex-wife? Did I read that correctly? If so, that’s a really really bad idea!!

I was hoping it is his GF that he has the kid with and looking to move to the next stage short of marriage?

 

[Mandelon]

Do you need to sell to afford the new house?

I'm all for hanging on to real estate. It hasn't sucked for me, in fact exactly the opposite. We have large equity gains over the years. I wish I would have purchased more.

You could convert one house to a rental, probably for a year then can sell and do 1031 exchange. But that is a tax man question.

 

[gqchris]

Wait I’m cornfused. You want to buy a house together with your ex-wife? Did I read that correctly? If so, that’s a really really bad idea!!

I was thinking same thing. I would really think this over as these decisions you make right now will affect you the rest of your life!

If youre not married yet, I would get an attorney involved as well to make sure all parties are protected.

And if youre married, well youre just screwed like the rest of us!

 

[X Hoser]

I don’t know your current relationship situation so what I say may be inaccurate. I see Red Flags all over this. Maybe your relationship works because you live separately. Once you co-habitate, that may be a strain on the relationship and a deal breaker? Pre-Nups, Family Trust and how you hold Title should be strongly considered. With this being said, IF you can purchase the new home without selling, I’d think keeping the existing homes and renting them out would be wise until you see how things work. You can always sell them later and bank the proceeds as reserve, or pay down the loan? I always look at my bail-out point if ever needed! But that’s me, your situation may be totally different than the picture I’m painting. (Assuming you live separately). Good Luck

 

[COCA COLA COWBOY]

I'm a realtor, but have no skin in the game...I would keep and deal with both homes and wait as only us realtors win when you sell. Interest rates have already gone up 1% this year and the fed is trying to get rates to 6%. I don't care what anyone says, when rates go up, prices go down. You're going to see softening, some great deals and more inventory in the next 6 months...it'll probably be great to buy in the next year or so.

We want a new home badly and can pull the trigger immediately, but common sense says to wait. I want a new truck and am waiting because even that will be about $17,000 difference when the inventory hits.

 

[gqchris]

I'm a realtor, but have no skin in the game...I would keep and deal with both homes and wait as only us realtors win when you sell. Interest rates have already gone up 1% this year and the fed is trying to get rates to 6%. I don't care what anyone says, when rates go up, prices go down. You're going to see softening, some great deals and more inventory in the next 6 months...it'll probably be great to buy in the next year or so.

We want a new home badly and can pull the trigger immediately, but common sense says to wait. I want a new truck and am waiting because even that will be about $17,000 difference when the inventory hits.

I appreciate the honesty CC Cowboy.

Hell.... one of my best friends of 20 years is a realtor, and he still feeds us all the Kool-Aid that NOW is the time to buy. He refuses to be honest, or maybe in is heart he believes his own shit.

Im like Bro, quit running your mouth and treating us like we are one of your laydown clients. It doesn't take a psychic to see something has to change soon. Whatever it may be!

 

[Tooms22]

I'm a realtor, but have no skin in the game...I would keep and deal with both homes and wait as only us realtors win when you sell. Interest rates have already gone up 1% this year and the fed is trying to get rates to 6%. I don't care what anyone says, when rates go up, prices go down. You're going to see softening, some great deals and more inventory in the next 6 months...it'll probably be great to buy in the next year or so.

We want a new home badly and can pull the trigger immediately, but common sense says to wait. I want a new truck and am waiting because even that will be about $17,000 difference when the inventory hits.

Don't you end up eating about the same monthly payment though?

So if it's a long term play, does it matter?

 

[Good Stuff]

No expert here but depending on new property you are looking at purchasing you could do a 1031 exchange? More experienced can chime in. But essentially sell hers and take profits with no capital gains and sell yours and roll the profits toward new property.

Can’t 1031 exchange unless it has been a rental already and purchased home is fully intended to be a rental. Things can always change with your intentions after the purchase but it will bring scrutiny and can definitely bite you after the fact. Especially with all these new IRS agents trying to justify their cost.

 

[Gonefishin5555]

I’d keep both

I'll try to keep this as brief as possible.

My daughter's mom and I each own our own separate homes, but have been looking to combine things for the last year or two.

Our list of requirements is very extensive, to include large horse property, a shop for me, built-in pool and spa, an office, keeping our daughter in the same school district, and a kitchen that she loves. We have looked at many, but none fit the full bill. Today we found the one that is absolutely perfect in every way, and it happens to be a friend of a friend that is selling the house. A handshake deal was done, and all parties are ready to move forward.

Her house: 2300 ft, four bedroom three bath, pool and spa, half acre lot. Positive equity is 240k.. Rental net income would be about 1k.

My house: 3,700 ft, 5 bedroom 3 bath 1450 ft attached eight car garage, separate detached 350 ft garage, almost 1 acre. Equity is around 300k. Net rental income could be $1,500 according to my realtor. The kicker on mine is that I've only owned it for 18 months, so capital gains will get me.

So here's the question, do we sell both, rent both, or what combo? According to most on here, being a landlord in California sucks balls. So just sell and invest the money? Take the hit on Capital gains, or can I avoid it by putting that money down on the new house? We would much rather use the sale proceeds from one of the houses to pay the down payment, but if that doesn't happen it's not a deal killer.

Money in the bank is always good, but so is real estate on the books. Not sure which is more desirable at this point...

You can't 1031 a personal residence. You would need to convert it to a rental property for a period of time first. Your house could possibly qualify for a partial exemption if you sold it based on qualifying circumstances but so close to 24 months seems like you would be better just waiting it out.

One thing if you both work I think just keeping everything and buying the 3rd house is the best option. All things combined you would have $2500 rent to apply to the new payment plus your incomes it just seems like an easy deal. Every year if real estate appreciates you multiply that appreciation % by the value of three homes its probably a lot money to bank. Inflation is just going to be friend going forward making the payments easier and easier as time goes by.

 

[RiverDave]

Learn something new everyday.. didn’t realize you couldn’t 1031 a primary?

Either way I’d sell yours and get the new one. If you sell both and combine what happens if things go sideways?

I personally wouldn’t look to renting in California, the rules are stacked against you.

 

[D19]

1031 has nothing to do w/ primary residence. 1031 was created for RE held for investment only and must be traded for like-kind (another investment) in order to defer taxes.

You don't avoid tax, you defer it until you make it yours (use as a primary, 2nd home etc) or the you pull the profit once sold (no longer held for investment). Then you're taxed.

Primary allows you to avoid tax is you live in it 2 years up to determined amounts. You are never exempt from paying on the gain of an investment.

It's tough enough to be a contingent buyer in So Cal. Being contingent to sell 2 properties is going to be one tough act to pull off. If the house is off market (no one else knows about it) then you'll have better luck.

 

[yz450mm]

Where are these houses located?

Apple Valley, CA

Wait I’m cornfused. You want to buy a house together with your ex-wife? Did I read that correctly? If so, that’s a really really bad idea!!

Negative, never married. Long term GF with an 11 year old child.

Do you need to sell to afford the new house?

I'm all for hanging on to real estate. It hasn't sucked for me, in fact exactly the opposite. We have large equity gains over the years. I wish I would have purchased more.

You could convert one house to a rental, probably for a year then can sell and do 1031 exchange. But that is a tax man question.

Don't need to sell both, but also don't want to wipe out savings for the down payment. The initial idea/plan is to sell hers and keep mine to rent out. Split the down pmt and monthly expenses.

I don’t know your current relationship situation so what I say may be inaccurate. I see Red Flags all over this. Maybe your relationship works because you live separately. Once you co-habitate, that may be a strain on the relationship and a deal breaker? Pre-Nups, Family Trust and how you hold Title should be strongly considered. With this being said, IF you can purchase the new home without selling, I’d think keeping the existing homes and renting them out would be wise until you see how things work. You can always sell them later and bank the proceeds as reserve, or pay down the loan? I always look at my bail-out point if ever needed! But that’s me, your situation may be totally different than the picture I’m painting. (Assuming you live separately). Good Luck

Totally agree, having a backup plan is something that we both acknowledge would be a good thing in case it falls apart. My house would be more profitable as a rental, but all the negative talk about being a California landlord has me on the fence.

I’d keep both

You can't 1031 a personal residence. You would need to convert it to a rental property for a period of time first. Your house could possibly qualify for a partial exemption if you sold it based on qualifying circumstances but so close to 24 months seems like you would be better just waiting it out.

One thing if you both work I think just keeping everything and buying the 3rd house is the best option. All things combined you would have $2500 rent to apply to the new payment plus your incomes it just seems like an easy deal. Every year if real estate appreciates you multiply that appreciation % by the value of three homes its probably a lot money to bank. Inflation is just going to be friend going forward making the payments easier and easier as time goes by.

That would probably be the best idea and would be the best backup plan, but she needs to use some equity to help with the down pmt on the new house.

Learn something new everyday.. didn’t realize you couldn’t 1031 a primary?

Either way I’d sell yours and get the new one. If you sell both and combine what happens if things go sideways?

I personally wouldn’t look to renting in California, the rules are stacked against you.

Things go sideways would mean me buying her out of the house, or selling and recouping our investment $ and splitting the equity. If I still had my house, it would make things easier, but would still be messy.

 

[Mandelon]

I think you just hear about the bad tenant issues. I know many people with rentals and they have rarely had a bad experience. Sure thing leak, or wear out but that's normal. A properly vetted tenant is typically not an issue.

 

[Gonefishin5555]

Apple Valley? okay I amend my answer to sell one now and the other in six months. I'd rather own a condo in orange county.

 

[brgrcru]

I'm a realtor, but have no skin in the game...I would keep and deal with both homes and wait as only us realtors win when you sell. Interest rates have already gone up 1% this year and the fed is trying to get rates to 6%. I don't care what anyone says, when rates go up, prices go down. You're going to see softening, some great deals and more inventory in the next 6 months...it'll probably be great to buy in the next year or so.

We want a new home badly and can pull the trigger immediately, but common sense says to wait. I want a new truck and am waiting because even that will be about $17,000 difference when the inventory hits.

wow ! thank you. a realtor, that is in the industry, not just for himself. high five emogi.

 

[PlumLoco]

We have a 1 bedroom 1000 sq ft back house that we have been renting exclusively to traveling nurses. They are the best tenants, rarely home, usually single so less wear n tear, and less water and gas users (we pay the utilities). They usually have 13 week contracts for work that they usually re-up for another 13. You can expect that they dont have shady backgrounds, and if you dont like them as tenants, they never stay too long.

 

[ONE-A-DAY]

How much is your capital gain? If it isn’t some ridiculous number your CPA can make that go away with a few receipts from your friends that are contractors.