What is the best option for me

21 Replies

Hello!!

I am new to this forum and would like some feedback on a scenario I am facing. This is a good scenario. I purchased my home in 2011 in west midtown atlanta ga and it was a short sales, so I received a really good deal on it. Now the market has changed and the home value and recent home sales in my townhome community are almost 100k more than what I owe. If I put my home up for sale I could receive anywhere between 80k-95k in profit. I would rent after I sell it . My question is what should I do with that money? I am really interested in real estate and have viewed several properties in the atlanta area . I would like to see if purchasing a rental unit to generate income is smart or purchasing a rather inexpensive home in a upcoming area and flipping it for higher profit. I would like to be able to not put all the money in one or another but do several things with it. I welcome any suggestions, mentor opportunities, network opportunities . 

Congrats on the increase in equity Mildred! I think you are certainly on the right track. If you do decide to sell, you should take to your tax professional to see if your new purchase can qualify for a 1031 exchange. You can buy a small multi-family and reap the benefits of virtually living rent free. If you have any questions or need any referrals for real estate tax professionals let me know. If you need a real estate agent, I can help with that as well.

Thanks for the reply. What is a 1031 exchange?

a 1031 exchange is an allowance in the IRS code if certain conditions are met, investors can defer capital gains tax. You may or may not need this because the townhouse was your primary residence and there is a $250,000 capital gains exemption for primary residences, just wanted you aware of all your options.

Food for thought... 

Assuming your LTV is not too high, you might be able to get a very low rate HELOC and use that money to purchase / down payment on your next rental property.

Best of luck on your next move @Mildred R.  

Flavio

This post has been removed.

Thanks for the response back @Flavio Zanetti undefined . How do I find out my LTV? My home was sold to me for 156k in 2011, I owe 138k on it now, and can sell it for 240k. How do I calculate my LTV? I want to make the best decision and not just stay in this home if I can make a good profit and start investing.

Hi Mildred,

First, congratulations!  I think this house is your primary residence and not a rental property, correct?  If so, it would not qualify for 1031 Exchange treatment.  It would qualify for a tax free gain of up to $250,000 (if you are single) and $500,000 (if you are married) since it is your primary residence. 

So, your gain would not be taxable because you have owned and lived in the house as your primary residence for at least 24 months out of the last 60 months (2 out of the last 5 years).   You can sell the house, have no tax liability to worry about on the gain, and then take all the time you need to decide what your next step should be.

Medium exeter 1031 clr cntr bBill Exeter, Exeter 1031 Exchange Services, LLC | [email protected] | (619) 239‑3091 | http://www.Exeter1031.com

You are correct @Bill Exeter  this is my primary residence  right now. I do not own any other properties. I am looking to sell this one I am living in, gain profit from sale, and then invest in real estate. My question to yourself and other investors who are more experienced than me, is what is the smartest way to go? Should I use half of the cash and a buy one rental unit (buy in cash), or use half of the cash and purchase a home that needs minor renovations, and resale it for a higher profit?

Welcome to the forum! That's a good dilemma you have there! What is your current mortgage payment vs. rent you would be paying? What about pulling out some of your equity through a cash out refinance of your existing residence? Take that equity to purchase your new rental property all while keeping your existing property. This scenario is the quickest way to increasing overall net worth but make sure you put pen to paper and make sure the numbers justify it. 

@Mildred R.  That is a great dilemma!

I would second @DJ Hite 's suggestion of doing a cash out refinance or a HELOC (Home Equity Line of Credit). That would still give you a chunk of cash to work with, without having to sell your house. From what I've heard about Atlanta, and based on the appreciation of your home, it would be wise to hold onto it.

Bigger Pockets is a great place to learn about investing and connect with other investors, local and around the world.

As for what you should do with the money, that's going to depend on your goals, appetite for risk, and your aptitudes or what you like doing.  I would strongly suggest reading the Ultimate Beginners Guide.

http://www.biggerpockets.com/real-estate-investing

This helped me define what I wanted to do in RE (and what I didn't) and I learned a tremendous amount about how to evaluate properties to determine if they are a good investment.

Best of luck and please reach out with any questions,

Andrew

Thank you @DJ Hite  and @Andrew Davis undefined. I appreciate the feedback and suggestions. I am going to read the Guide you suggested and lay out what my plans are. I know I would like to go ahead and sell, but like you said I need to have the basic information down on what to do next once I have it sold.  I do have another question. Is it better to own outright (pay with cash) or finance on investment properties?

I think it depends on your goals. Are you looking to buy and hold properties and build a portfolio of rentals and increase your net worth? If so, then I would not recommend selling your existing property. If you want to build your net worth and build passive income, then accumulating properties that positive cash flow should be your goal. Fixing and flipping is another way to make money in real estate but it is a much different game than buy and holds. The guide is a great tool to help understand the different nuances of real estate investing. 

I think if it were me, I would look for a duplex or triplex that I could buy, live in one of the units and then rent the other one or two out. 

Medium exeter 1031 clr cntr bBill Exeter, Exeter 1031 Exchange Services, LLC | [email protected] | (619) 239‑3091 | http://www.Exeter1031.com

I just jumped into this but I have two comments. One- dont try to live in a unit that needs a fair amount of renovation ( I have several times and will discourage it) Two- If you have a regular job and good credit, I would leverage your primary home purchase (put as little down as possible) to secure a 30yr low APR loan and use the balance of your cash to purchase either a house to flip or if you want a long term rental- purchase, rehab (for cash) and then get a renter and refi out and do it again. You can always sell your primary home (after 2 plus years) and get the profit possibly tax free.

Hi @John Santero  ! Thanks for the response. Yes I have been in my home since 2011, I own 138k on it, and the homes in my complex are selling (really quick- less than 15 days on average) in the 240k range. I was thinking of just selling and then renting in a apartment complex while I use that money to buy maybe 2 properties with cash, or buy a duplex and rent the units out. 

Originally posted by @Mildred R. :

Hello!!

I am new to this forum and would like some feedback on a scenario I am facing. This is a good scenario. I purchased my home in 2011 in west midtown atlanta ga and it was a short sales, so I received a really good deal on it. Now the market has changed and the home value and recent home sales in my townhome community are almost 100k more than what I owe. If I put my home up for sale I could receive anywhere between 80k-95k in profit. I would rent after I sell it . My question is what should I do with that money? I am really interested in real estate and have viewed several properties in the atlanta area . I would like to see if purchasing a rental unit to generate income is smart or purchasing a rather inexpensive home in a upcoming area and flipping it for higher profit. I would like to be able to not put all the money in one or another but do several things with it. I welcome any suggestions, mentor opportunities, network opportunities . 

Join a couple of local REI groups to learn your market, build your network; get an education; then decide on your strategy. That strategy may include keeping your current property and leveraging a HELOC to support a purchase of a property for flip or selling & using the cash. If your credit is good you can combine leveraging OPM w/ your cash & purchase properties to flip, flip again; then use the cash from the flips to buy & hold. There's naturally a ton of other details, such as setting up the property company structure to protect yourself and minimize taxes. Hence why the 1st recommendation is learn, learn, learn.

Hello @Mildred R.

Welcome to BP and congrats on your first successful REI ! Atlanta is a great RE market to start investing.

Everyone has great points and speaks from their own experience. We all do what best works for us and you should do the same. I agree with @Crystal Smith the most. Education is the key to your success, especially financial education. Spend few months educating yourself about RE, as it can be very rewarding but painful at the same time.

The most important question to ask yourself is, "Why do I want to invest in Real Estate." You are starting a business and the same principles apply. Who is your target audience? What is your niche? Do you have a business plan? Goals? R&D. 

After you answer all those questions, create a team of people smarter than yourself that will help you move forward. Attorney, agent, accountant, etc.

Good luck and let me know if you have any further questions. 

Damir Kamber 

@Mildred R.  Congratulations! 

Everyone has made some valid points. I agree with @Damir Kamber suggestion. You have several options at your disposal so choose wisely and don't rush into any decisions. Educate yourself think about your 1,3, 5 year plans. Think in terms of Net Worth, Cash on Cash Return, ROI and Big Picture

Here are some options that others mentioned as well 

1031 Exchange: http://www.biggerpockets.com/rei/guide-1031-exchan...

Cash Out Refinancing: http://www.biggerpockets.com/forums/12/topics/8339...

Commercial Bldg: Get a Quadplex - Sixplex or an Apartment building and make sure the numbers make sense. At the end of the day its a numbers game so educate yourself, network with as many RE people as you can and make sure the property meets the financial criteria you specify. 

Good Luck and wish you continued success 

Thanks everyone for all of the suggestions. My main goal right now is to LEARN more about Real Estate Investing, and come up with a 1 year plan on how I become a great Investor.

@Mildred R.  What an envious position to be in, while I am certainly not as educated as others here I agree with those that say educate yourself until you feel comfortable with it. The worst thing in my opinion to do is rush into something. I am in a similar place, attempting to educate myself and devise a plan.

Whatever you choose, best of luck.

Use the money to find yourself a good mentor/partner. Do that by funding a flip. This is where it gets relatively tricky. However, if you trained yourself to find a really good deal and put one together with the funding, you could offer it on your terms to someone who you think is a professional and honest player and that means your very own completely independent diligence from the get go. 

There are plenty of good contractors out there who would like a J.V. deal, just make sure you have it all signed off with the correct paperwork.

Good luck to you.

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