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Home > I need professional help..added Duplex pics!!

I need professional help..added Duplex pics!!

December 15th, 2008 at 12:31 pm

I might need the tax pros help here...and the landlords help...and well, all of your opinions!!

BB and I found a house (duplex) that we want to make an offer on. I LOVE LOVE LOVE it. I actually saw it last month when we went house hunting but BB talked me out of it and so I agreed to move on...but my heart never really moved on. So when we looked at it again this weekend, BB instantly fell in love too. (I have no idea why that happened - but he loves it now.)

Sooooo....the only drawback is...Both units are currently rented. We are investigating how long the lease is and if there is a kick out clause for change of ownership- but I am betting the place will be rented until this coming August.

So if we buy this place- we must buy it as an "Investment Property" in the mortgage paperwork which bumps our 5.5% interest rate to a 6.5% rate for 30yrs fixed.

Once the leases have ended and we can move in- we are told we can refinance it and call it a "primary residence" mortgage to get a better rate.


1. First time home owners tax credit- will I get it if we buy an "investment property?"...If not, will I get it if we refinance into a primary residence? How about if we refinance in August and the tax credit is slated to end in July 09?

2. Fully rented, the units create $2,000 income. Going from a 5.5 to a 6.5% interest rate is $100 a month difference. Will it be worthwhile for us (me) to buy the property now and continue to live in FL but landlord in GA? I guess I need to run the numbers myself...but I am just thinking to myself "what if something breaks? What if there's a problem? Landlording from so far away...paying higher homeowners insurance (have not gotten quotes yet)...paying to live in FL...what $$ amount would make this a worthwhile venture?

3. Depreciation/improvements write offs...I will be able to deduct depreciation from the whole building now for the year...but how bout if we make major improvements while the property is still an "investment property"? BB and I would like to redo our kitchen and add a back porch on...should we do all that after the renter has moved out and before we refinance it into a primary residence? Or does improvements/depreciation cancel each other out?

4. Will we be able to refinance? We are putting over 40% down...but I have heard nothing but cries of "we cant refinance!!" coming from the media.

5. Is this a financially dumb move??

BB is just...pressuring me. Arguing with me. Arguing his point over and over again. He never ran any numbers, he did no research. I don't trust his input because I know it comes from emotion and not clarity. He says "you were ready to commit to 5.5%...whats $100 a month(at 6.5%) for 8 months when we are pulling in $2,000? Then we can refinance. We can save the extra income and put on that back porch you want." But I cant help but have ringing bells in my head screaming that this is a bad bad idea...is it??

23 Responses to “I need professional help..added Duplex pics!!”

  1. whitestripe Says:

    hmm. i dont really have any financial advice bc we're in different countries (here the current owners can ask you to move out in time for the settlement date as long as its 30 days or more) but it sounds like you guys might not be on the same page and it's not really good to rush into something if you don't agree on it. it sounds like you're doing all the research and are aware of everything, but BB just wants something and might be being stubborn? it took me a year to convince BF that just because a 'house' is a good investment, doesn't neccesarily mean we can afford it at all, and that if we can afford a unit, it's best to get the foot in the door and build up our equity. i actually had to go and get home loan offers before he would believe me that we couldn't afford it! (and guess what? NOW we can afford a house! ha! :S)
    anyway, i'm rambling. i guess i am just trying to say, don't give in just because it's a nice place, if you think it might be a bad idea at the start.

  2. monkeymama Says:

    I don't think it is a bad idea overall.

    #1 - you'll lose the credit. I am pretty sure. There may be around it, but that is a pretty complicated tax question - my gut says no you won't get it.

    #2 - Long distance landlording wouldn't be my choice, but it's only for a few months - I don't think it would be that bad.

    #3 - In general with a rental, depreciation and expenses cancel out income. You can not take losses beyond that, so adding on while it is a rental probably won't help much. It might generate a loss you can't take. Though it really depends on the situation and hard to give advice from here. In general I would say it won't make much difference either way.

    #4 - I don't know. There is obviously no 100% guarantee of refinance. But I would think odds are you probably could, and that rates will be rather low for a bit. But, then you are talking almost a year into the future. Who knows!

    #5 - I'd say it is dumb if you can only afford it due to a refinance that may or may not materialize?

    Seems to me purchasing the house should void any existing rental contract though. Makes it interesting!

  3. gamecock43 Says:

    Thanks guys!! I guess I should say that each unit collects $1000 a month. Mortgage at 5.5% (primary residence) is $530 a month. At 6.5% (investment property) it is $630 a month. (plus taxes, and homeowners insurance).

    As I type this I am starting to come around. I am just not good with thinking outside the box. I want to do everything the safe way, the way that it's supposed to be done. I get nervous when I have to live creatively.

  4. lizajane Says:

    I do not consider myself a "tax pro", but I saw this on the federalhousingtaxcredit.com site: "Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a PRINCIPAL RESIDENCE and the buyer has not owned a home in the previous three years." (my capitalization) I would think that if both sides are rented and you can't live there until after 7/31/09, that it would not allow you to take the credit, because in some other questions, it talks about using the first date of occupancy to determine ownership (on a house that is being constructed). Just my 2c worth, but I don't think I answered anything for you. I just more or less confirmed the same uncertainty you have.

  5. ceejay74 Says:

    "I want to do everything the safe way, the way that it's supposed to be done. I get nervous when I have to live creatively."

    LOL. That's funny coming from you, gamecock--you have one of the most outside-the-box lifestyles I've come across on this blog! You do live creatively, and I'd think you'd be used to thinking outside the box, since your life has followed such an unusual path.

    I agree with MM's #5: Make sure you are OK with the monthly amount, because anything could happen in a year, including interest rates going up to the point where you cannot refi at the percentage you want. If you can't live with that mortgage payment or that interest rate for more than a year, I would say you're not ready to buy.

  6. gamecock43 Says:

    Ok, Liza, you confirmed that for me. We wont get the tax credit. I GUESS that's ok since we have to pay it back $500 a year after the first two years?? So we're not losing free money-right?

    And Ceejay- yeah- we do live outside of the box- I guess I am just used to moving around and don't consider it so unusual- but it is. I am just afraid of making a big big mistake in this whole process.

  7. Analise Says:

    Speaking as a landlord, investment property can be a good deal but be careful as it can also be a cash drain. You need to have a plan to address vacancies and maintenance. Set up a reserve account for these expenses because they will come up.

    If I were living in FL and the duplex is in GA, I'd get a good property manager. Most charge 10% of the rents collected, but it's tax deductible. They will deal with the issues until you are able to take over. Also get the advice of a good accountant who can be worth their weight in gold. Tax wise, our rentals don't provide any benefit as we exceed income limits. They do, however, augment our income. It might be different for you, though.

  8. NJDebbie Says:

    When we bought our duplex, as long as we gave ample notice to the current tenants, we could have the tenants vacate the premises. You should check their lease to see if there is a clause regarding their rights (tenants) if the home was sold. You should consult a lawyer because you shouldn't have to pay a higher interest rate for a residence you intend to live in.

    Congrats on finding a home.

  9. monkeymama Says:

    Yeah, and I just have to clarify - I think you could argue your intentions are to buy home for residence, but since it is a brand NEW law (the tax "credit") I haven't particularly read it through and there is no precedence to support a case like yours. So it would be a risky position. At this point, details like this are pretty unclear - a tax preparer would take an educated guess. (Though IRS could release more details later and you could always amend return).

    I think your best bet is to boot the renters.

    It's Cute!

  10. gamecock43 Says:

    Amending the return...well that's a good point to remember down the road.

  11. Koppur Says:

    I honestly can't help you with your questions, but the place is beautiful!

  12. swimgirl Says:

    Great looking house! Good luck.

    I'm reading the responses with interest... we are thinking of moving in the next 6 months to 2 years. Clearly, bad time to sell a house. But we are in an area with a BOOMING rental market and low vacancies, so we are thinking of renting our current house and then renting a place to live in the new city. Then, we'll save like mad (I will have greatly increased income in the new city, provided I can get a job--shouldn't be too hard, but nothing is a given), and wait to sell this house, maybe buy another.

    Need to move to decrease commuting time and cost. Hub pays over $500 per month to commute (even with the low gas prices now), so that would go away... plus I would bring home about $1300 per month more.

    Good luck, Gamecock!

  13. whitestripe Says:

    i just wanted to say it's a lovely looking place! Smile

  14. scfr Says:

    Just have to ask: Are you emotionally prepared to evict a renter who does not want to leave and has maybe been a good tenant? What if they have little kids and a cute puppy and the mom starts to cry when she hears she is going to have to move them out of the place they love?

    Don't mean to be a downer, but for me that would be the worst part of the scenario you describe.

    Hopefully it wouldn't come to that. Hopefully one of the renters wants to leave and gives notice. But if you tell them you are not going to renew their lease and they refuse to leave, won't you have to evict them? I wouldn't have a problem evicting a problem tenant who did not pay their rent, but a good person who was a good tenant and wanted to stay would be another story all together.

  15. gamecock43 Says:

    I know the renters- they are college students. I am prepared to evict a renter IF I must...but I am pretty sure that legally I have to let the lease play out. My only HOPE is- the seller is an investor and has many rentals all over town...maybe the seller will want to move one of the renters to his other property...long shot but I'm HOPING!!

  16. Analise Says:

    I see why you "love" it... it is a darling place. Good luck!

  17. my english castle Says:

    I also have no tax advice, but the pictures are gorgeous, and since it's 5 degrees here, I'm swooning over the palm trees!

  18. Ms. Pearl Says:

    I love it too!

  19. lizajane Says:

    Thanks for adding the pictures. It looks like a really nice place.

  20. Amanda Says:

    I love it to! I wish I could help with the other questions, but that is one cute place.

  21. monkeymama Says:

    I just had to giggle at scfr's post - which is VERY wise and on point. BUT I realized I have no heart. LOL. Of course I'd kick out the puppy and kids. (I've seen a few too many psycho renters who refuse to move out to care that much I guess - their loss - they chose to rent).

    Though I've seen enough of these cases that she brings a great point - eviction would be likely.

    College students sound easy and simple though.

  22. NJDebbie Says:

    Wow, what a great looking house!

  23. jIM_Ohio Says:

    As an investment this looks good- you would have $300 profit per month.

    I might suggest just becoming landlords and then looking for another house in the area.

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