Newly built home. sell or rent?

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bfizz
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Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 12:45 pm

I'll be getting married early next year. My fiancee built a home ~6 months ago in St. George, UT (where she's been living and working). After we get married, we will be moving to Chicago so I can continue my grad program at U of Chicago (~2 years to go).

We are struggling to know what to do with her property. She is tempted to sell it, but I don't want to incur cap gains due to the limited time she's been holding the home. She's also considered renting it. There is a chance we move back to St. George since my work is remote based and she can find a job fairly easily as a Nurse Practitioner but I'd say the probability is less than <50%. Any thoughts would be appreciated. Trying to see this from all angles.

Thanks!

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jfn111
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Re: Newly built home. sell or rent?

Post by jfn111 » Mon Nov 20, 2017 12:47 pm

I would sell it. In less you have definite plans to return, trying to be an absentee landlord is probably more hassle than you want.

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dm200
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Re: Newly built home. sell or rent?

Post by dm200 » Mon Nov 20, 2017 12:50 pm

bfizz wrote:
Mon Nov 20, 2017 12:45 pm
I'll be getting married early next year. My fiancee built a home ~6 months ago in St. George, UT (where she's been living and working). After we get married, we will be moving to Chicago so I can continue my grad program at U of Chicago (~2 years to go).
We are struggling to know what to do with her property. She is tempted to sell it, but I don't want to incur cap gains due to the limited time she's been holding the home. She's also considered renting it. There is a chance we move back to St. George since my work is remote based and she can find a job fairly easily as a Nurse Practitioner but I'd say the probability is less than <50%. Any thoughts would be appreciated. Trying to see this from all angles.
Thanks!
Can you/she consider and find someone who will rnt with the option to buy?

How much of a tax hit would you/she take if you just sell now?

chevca
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Re: Newly built home. sell or rent?

Post by chevca » Mon Nov 20, 2017 12:58 pm

How much has the home appreciated in just 6 months? If just a few thousand, how big a tax hit are you worried about... a few hundred bucks?

Easy answer, sell it for the amount she paid for it 6 months ago. :happy

pdanet
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Re: Newly built home. sell or rent?

Post by pdanet » Mon Nov 20, 2017 12:58 pm

bfizz wrote:
Mon Nov 20, 2017 12:45 pm

We are struggling to know what to do with her property. She is tempted to sell it, but I don't want to incur cap gains due to the limited time she's been holding the home.
what cap gains are you talking about?

bfizz
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Re: Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 12:59 pm

dm200 wrote:
Mon Nov 20, 2017 12:50 pm

Can you/she consider and find someone who will rnt with the option to buy?

How much of a tax hit would you/she take if you just sell now?
Maybe. We haven't really looked. lease to buy is a 3rd option for sure. I think her loan was ~$317k and then she put 10% so ~$275k left on the mortgage. She said it was recently appraised for a little less than $325k so she has some gains already. (3br/2.5ba) What's the proper way to thinking about the tax hit? Is it just on the gain of the sale? I've only rented and am just starting to read up on real estate.

bfizz
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Re: Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 1:02 pm

chevca wrote:
Mon Nov 20, 2017 12:58 pm
How much has the home appreciated in just 6 months? If just a few thousand, how big a tax hit are you worried about... a few hundred bucks?

Easy answer, sell it for the amount she paid for it 6 months ago. :happy
Good point, I think it's appreciated by at least $5k. It would be nice to try to cover some closing costs and just pay the cap gains on the $5k. Like you said, not a big enough number to really matter.

chevca
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Re: Newly built home. sell or rent?

Post by chevca » Mon Nov 20, 2017 1:06 pm

Yes, in this short a time frame, I'd say worrying about a possible small tax bill isn't worth worrying about. If she makes a few thousand off it and has to pay a thousand in taxes or whatever, she still walks away with a couple thousand. Never fun to pay taxes, but that's not to big of a hit.

It goes of the purchase and sale price. The mortgage and down payment and all have nothing to do with it gains/tax wise.

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mhc
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Re: Newly built home. sell or rent?

Post by mhc » Mon Nov 20, 2017 1:11 pm

Once you pay closing costs will you really have any gains?

I would sell it and move on to your new life.

chevca
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Re: Newly built home. sell or rent?

Post by chevca » Mon Nov 20, 2017 1:15 pm

Oh, that's right. Once her adjusted basis is figured, it will likely be over her purchase price. It's likely there will not be any gains to even worry about.

Basically, any gains probably shouldn't even be factored into the decision. It's not going to be enough, if any, to really matter in the big picture.

JGoneRiding
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Re: Newly built home. sell or rent?

Post by JGoneRiding » Mon Nov 20, 2017 1:26 pm

bfizz wrote:
Mon Nov 20, 2017 1:02 pm
chevca wrote:
Mon Nov 20, 2017 12:58 pm
How much has the home appreciated in just 6 months? If just a few thousand, how big a tax hit are you worried about... a few hundred bucks?

Easy answer, sell it for the amount she paid for it 6 months ago. :happy
Good point, I think it's appreciated by at least $5k. It would be nice to try to cover some closing costs and just pay the cap gains on the $5k. Like you said, not a big enough number to really matter.
in that case you are looking at a non-deductibles loss. You get to add selling cost to basis. Bad move on your fiancée part but assuming you are planning for forever she will recover.

stan1
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Re: Newly built home. sell or rent?

Post by stan1 » Mon Nov 20, 2017 7:01 pm

Has she put any money into the house since she bought it? Where I live new houses usually do not come with landscaping or window coverings and there's a myriad of things do like put in shelving, gas logs, custom paint, and so forth after the house is bought from the builder. Those items all add to the house's cost basis.

WhiteMaxima
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Re: Newly built home. sell or rent?

Post by WhiteMaxima » Mon Nov 20, 2017 7:06 pm

St George. the gateway to Zion NP. start point of golden cicle. Beautiful place. Keep it as vacation base.

TRC
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Re: Newly built home. sell or rent?

Post by TRC » Mon Nov 20, 2017 7:14 pm

Speaking from experience, being an out of state landlord is a really, really bad idea.

drpepper
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Re: Newly built home. sell or rent?

Post by drpepper » Mon Nov 20, 2017 9:27 pm

bfizz wrote:
Mon Nov 20, 2017 1:02 pm
chevca wrote:
Mon Nov 20, 2017 12:58 pm
How much has the home appreciated in just 6 months? If just a few thousand, how big a tax hit are you worried about... a few hundred bucks?

Easy answer, sell it for the amount she paid for it 6 months ago. :happy
Good point, I think it's appreciated by at least $5k. It would be nice to try to cover some closing costs and just pay the cap gains on the $5k. Like you said, not a big enough number to really matter.

Aren't you forgetting realtor fees (6% of sale price) and other closing costs? The good news is she won't have to worry about paying taxes on capital gains. The bad news is she will incur a substantial capital loss on this sale.

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unclescrooge
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Re: Newly built home. sell or rent?

Post by unclescrooge » Mon Nov 20, 2017 10:04 pm

You should consider 6% in closing costs, or nearly $20k.

You are looking at losses, not gains.

Personally, I would rent it permanently. I have had out of state rentals since 2005. They can be a hassle, but if you don't get too worked up about small things, you'll eventually get the hang of it.

If not, sell it and move on.

Slacker
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Re: Newly built home. sell or rent?

Post by Slacker » Mon Nov 20, 2017 10:37 pm

Do a really, really great job of interviewing property managers in the area.

Pick your primary prop manager and have the next best company as your back up in case you decide you want to fire the primary prop manager choice.

If making the mortgage payments in case of vacancy isn't a problem when added on to your other living expenses, being a long distance landlord is fine if the numbers work out. I personally wouldn't want to "subsidize" housing for renters so there would have to be a profit and you need to save those profits to cover future maintenance and vacancies.

You also need to do some reading up on being a long distance landlord to set your expectations properly.

A great advantage of renting a brand new home is that likely the big maintenance items (HVAC, water heater, refrigerator, etc) won't need repairs any time soon. Disadvantage is that you usually can't make the numbers work with a brand new home turned into a rental property.

bfizz
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Re: Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 11:30 pm

unclescrooge wrote:
Mon Nov 20, 2017 10:04 pm
You should consider 6% in closing costs, or nearly $20k.

You are looking at losses, not gains.

Personally, I would rent it permanently. I have had out of state rentals since 2005. They can be a hassle, but if you don't get too worked up about small things, you'll eventually get the hang of it.

If not, sell it and move on.
Great point. Her mom is a realtor and offered to help us sell the home if we decide to do so. She wasn't going to charge us so that would reduce closing costs but of course leave at least $10k in costs.

How'd you go about handling out of state rentals? My fiancee's parents live a few minutes from her and her dad is above average in the "handyman" category. So I may be able to utilize them in the event we rent.

bfizz
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Re: Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 11:31 pm

TRC wrote:
Mon Nov 20, 2017 7:14 pm
Speaking from experience, being an out of state landlord is a really, really bad idea.
TRC thanks for the feedback, could you expand on why it turned out so poorly?

bfizz
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Re: Newly built home. sell or rent?

Post by bfizz » Mon Nov 20, 2017 11:37 pm

Slacker wrote:
Mon Nov 20, 2017 10:37 pm
Do a really, really great job of interviewing property managers in the area.

Pick your primary prop manager and have the next best company as your back up in case you decide you want to fire the primary prop manager choice.

If making the mortgage payments in case of vacancy isn't a problem when added on to your other living expenses, being a long distance landlord is fine if the numbers work out. I personally wouldn't want to "subsidize" housing for renters so there would have to be a profit and you need to save those profits to cover future maintenance and vacancies.

You also need to do some reading up on being a long distance landlord to set your expectations properly.

A great advantage of renting a brand new home is that likely the big maintenance items (HVAC, water heater, refrigerator, etc) won't need repairs any time soon. Disadvantage is that you usually can't make the numbers work with a brand new home turned into a rental property.
Slacker, thanks for the advice. Do you think it's worth trying to handle without a property manager? Her folks live just a few minutes away so I could utilize them if needed.

I agree, the numbers aren't looking good for renting. Her monthly payment for mortgage + other items is in the $1600 range. Not sure a 3br 2ba could demand much more than that despite being new.

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unclescrooge
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Re: Newly built home. sell or rent?

Post by unclescrooge » Tue Nov 21, 2017 1:18 am

bfizz wrote:
Mon Nov 20, 2017 11:30 pm
unclescrooge wrote:
Mon Nov 20, 2017 10:04 pm
You should consider 6% in closing costs, or nearly $20k.

You are looking at losses, not gains.

Personally, I would rent it permanently. I have had out of state rentals since 2005. They can be a hassle, but if you don't get too worked up about small things, you'll eventually get the hang of it.

If not, sell it and move on.
Great point. Her mom is a realtor and offered to help us sell the home if we decide to do so. She wasn't going to charge us so that would reduce closing costs but of course leave at least $10k in costs.

How'd you go about handling out of state rentals? My fiancee's parents live a few minutes from her and her dad is above average in the "handyman" category. So I may be able to utilize them in the event we rent.
Considering you have family that can manage the property and maintenance, I would absolutely rent it out.

Now your trips back home become tax-deductible if you check up on your investment property.

Valuethinker
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Re: Newly built home. sell or rent?

Post by Valuethinker » Tue Nov 21, 2017 6:13 am

bfizz wrote:
Mon Nov 20, 2017 12:45 pm
I'll be getting married early next year. My fiancee built a home ~6 months ago in St. George, UT (where she's been living and working). After we get married, we will be moving to Chicago so I can continue my grad program at U of Chicago (~2 years to go).

We are struggling to know what to do with her property. She is tempted to sell it, but I don't want to incur cap gains due to the limited time she's been holding the home. She's also considered renting it. There is a chance we move back to St. George since my work is remote based and she can find a job fairly easily as a Nurse Practitioner but I'd say the probability is less than <50%. Any thoughts would be appreciated. Trying to see this from all angles.

Thanks!
If you can possibly sell it, I would.

This could turn into a real millstone. The issues with renting it out. In addition, if property prices drop you could be stuck in negative equity with it.

GoldenFinch
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Re: Newly built home. sell or rent?

Post by GoldenFinch » Tue Nov 21, 2017 6:48 am

deleted-see below
Last edited by GoldenFinch on Tue Nov 21, 2017 6:58 am, edited 1 time in total.

Carl53
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Re: Newly built home. sell or rent?

Post by Carl53 » Tue Nov 21, 2017 6:54 am

GoldenFinch wrote:
Tue Nov 21, 2017 6:48 am
There won’t be capital gains taxes unless she made more than 250k (profit) on the sale as a single person, or 500k if she is married filing jointly.
OP fiance has not lived in the home two of the last five years and does not qualify for this tax treatment.

GoldenFinch
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Re: Newly built home. sell or rent?

Post by GoldenFinch » Tue Nov 21, 2017 6:57 am

Carl53 wrote:
Tue Nov 21, 2017 6:54 am
GoldenFinch wrote:
Tue Nov 21, 2017 6:48 am
There won’t be capital gains taxes unless she made more than 250k (profit) on the sale as a single person, or 500k if she is married filing jointly.
OP fiance has not lived in the home two of the last five years and does not qualify for this tax treatment.
Sorry. Will delete!

Natsdoc
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Re: Newly built home. sell or rent?

Post by Natsdoc » Tue Nov 21, 2017 7:03 am

Could you turn it into a vacation rental? A few companies are doing more full service management of these now so less hassle if you live out of state.
https://www.vacasa.com/property-management/

bubbadog
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Re: Newly built home. sell or rent?

Post by bubbadog » Tue Nov 21, 2017 7:04 am

mhc wrote:
Mon Nov 20, 2017 1:11 pm
Once you pay closing costs will you really have any gains?

I would sell it and move on to your new life.
+1

johnubc
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Re: Newly built home. sell or rent?

Post by johnubc » Tue Nov 21, 2017 8:15 am

I would recommend to sell - unless you KNOW you will return to the area.

Capital Gains - highly unlikely - you will be lucky if you do not sell for a loss - as the cost of the home will be set by the other new houses in the neighborhood and with closing/realtor fees - you will be lucky to break even. I would still recommend sell.

chevca
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Re: Newly built home. sell or rent?

Post by chevca » Tue Nov 21, 2017 12:11 pm

bfizz wrote:
Mon Nov 20, 2017 11:37 pm
Slacker wrote:
Mon Nov 20, 2017 10:37 pm
Do a really, really great job of interviewing property managers in the area.

Pick your primary prop manager and have the next best company as your back up in case you decide you want to fire the primary prop manager choice.

If making the mortgage payments in case of vacancy isn't a problem when added on to your other living expenses, being a long distance landlord is fine if the numbers work out. I personally wouldn't want to "subsidize" housing for renters so there would have to be a profit and you need to save those profits to cover future maintenance and vacancies.

You also need to do some reading up on being a long distance landlord to set your expectations properly.

A great advantage of renting a brand new home is that likely the big maintenance items (HVAC, water heater, refrigerator, etc) won't need repairs any time soon. Disadvantage is that you usually can't make the numbers work with a brand new home turned into a rental property.
Slacker, thanks for the advice. Do you think it's worth trying to handle without a property manager? Her folks live just a few minutes away so I could utilize them if needed.

I agree, the numbers aren't looking good for renting. Her monthly payment for mortgage + other items is in the $1600 range. Not sure a 3br 2ba could demand much more than that despite being new.
I was once an out of state landlord and hired a property management company to run the show. They were great and well worth the money as I was going through a big transition in life. The best part of what they did was advertise, find, and screen tenants. They would do all the work, run only the worthy applicants, by me, and I would make the final decision on who would get to rent the house. They also took care of small repair issues <$300. They took care of all the numbers and would send me year end statements. It was basically hands off for me.

I doubt you would be able to do both, have a property management company and use her folks for little things. It's been years, but I'm pretty certain the contract signed with the property management company said that sort of thing was prohibited. Maybe some companies are different though?

Would you guys and her folks want to take care of all the above, plus whatever else comes up? Or, would you rather hand it all off to professionals that do that?

I couldn't sell my house in 2009/2010 because I owed more than what I could get for it at the time. I sold it as soon as I could though. But, I had no interest in being a landlord. I really had no problems at all with the rental while I owned it. The only issue with vacancy I had was when a military couple got stationed somewhere else and legally left before the lease was up. That left me with a month or two of vacancy. Also, when I sold it I had to replace the roof due to unknown hail damage. Mostly good, but still costly stuff.

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djpeteski
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Re: Newly built home. sell or rent?

Post by djpeteski » Tue Nov 21, 2017 12:15 pm

jfn111 wrote:
Mon Nov 20, 2017 12:47 pm
I would sell it. In less you have definite plans to return, trying to be an absentee landlord is probably more hassle than you want.
+1, or 100 whatever suits your fancy.

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