I am now 3.5 years away from retirement and know where I want to retire. I found a new townhome development with affordable pricing on new build home. The HOA pays exterior and grounds maintenance, which I feel is a big plus for me. I would like to purchase a home there in a few months, but I do have some questions. When I look at the cash flow I expect it to be slightly negative (-$300/month) based on current rental rates in the area. This amount includes debt service, HOA, taxes, property management, repairs, vacancy, and insurance. I live in California and currently rent because of high home prices here, I am unable to own a primary residence. I make about $120K/year and I have no deductions so pay a ton of taxes. I am hoping that I would get some tax benefits to my income in this investment. Is this true? I would appreciate any advice.
@Denise Breheny cannot provide tax advice but I do not believe a negative cash flowing property provides any additional benefit to a homeowner besides the typical deductions you can take (which may or may not be impacted based on new tax bill)
In regards to buying now - what is the benefit of buying now vs 3 years where you will have paid an extra $10k in negative cash flow.
I typically recommend against buying properties which are negative cash flow. One thing to also consider is Rehab costs you will have to incur from the rental
Thanks @Chris Seveney for your response. Right now I have no tax benefits so even if my new benefit was for just only a mortgage deduction, wouldn't that almost mitigate the $10K over three years. I know you can't provide tax advise, would a tax accountant be able to help me, is that where I need to turn?
@Denise Breheny - that would be a good place to start. See what they say, there are other real estate investment strategies you could invest in in the meantime that would provide a return on investment. Say you had $25k, if you could get 8-10% returns (which are very doable) over the 3.5 years you just made a few grand on your $ to buy your retirement home versus paying out of pocket every month. If you have an SDIRA you could invest it as tax free (but can’t buy a primary residence with it).
Risk is price appreciation but I view pricing to decline over that period as we have had over 6 years of price appreciation which is one of the longest in history - but I am not n analyst it’s just my opinion
I personally would be hard pressed to convince myself to buy a negative cashflowing property in a market that is experiencing it's highest prices in history just to possibly save a little on taxes.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Join the Largest Real Estate Investing Community
Basic membership is free, forever.