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.
Questions:
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??
I need professional help..added Duplex pics!!
December 15th, 2008 at 08:31 pm
December 15th, 2008 at 08:42 pm 1229373754
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.
December 15th, 2008 at 08:46 pm 1229373992
#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!
December 15th, 2008 at 09:01 pm 1229374874
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.
December 15th, 2008 at 09:03 pm 1229375026
December 15th, 2008 at 09:07 pm 1229375226
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.
December 15th, 2008 at 09:23 pm 1229376192
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.
December 15th, 2008 at 09:24 pm 1229376253
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.
December 15th, 2008 at 11:26 pm 1229383583
Congrats on finding a home.
December 15th, 2008 at 11:50 pm 1229385049
I think your best bet is to boot the renters.
It's Cute!
December 15th, 2008 at 11:56 pm 1229385375
December 16th, 2008 at 12:35 am 1229387738
December 16th, 2008 at 12:51 am 1229388704
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!
December 16th, 2008 at 01:34 am 1229391240
December 16th, 2008 at 01:46 am 1229391970
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.
December 16th, 2008 at 01:49 am 1229392160
December 16th, 2008 at 02:08 am 1229393281
December 16th, 2008 at 02:31 am 1229394690
December 16th, 2008 at 05:27 am 1229405240
December 16th, 2008 at 05:42 am 1229406172
December 16th, 2008 at 05:52 am 1229406723
December 16th, 2008 at 02:03 pm 1229436186
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.
December 16th, 2008 at 11:46 pm 1229471196
December 17th, 2008 at 12:17 am 1229473034
I might suggest just becoming landlords and then looking for another house in the area.