Hello, I have a mortgage on a duplex. ($1,200) a month includes taxes and PMI. I have not rented the upper unit since my wife closed her group home upper unit. I mention to her we might as well buy a single family house and pay that much. I can not get another FHA loan, so I was wondering if my wife can get a loan and should I keep the duplex for rental. I can get $900 lower and $600 for upper. Is it worth the hassle. That would give me $300 extra a month but im afraid of water bill and maintenance. Please help with some guidance.
Is there a yard? If there is, do you need to hire a gardener? Can you get a quote on how much it would be to get insurance? How much do you pay now for the water bill for the upper and lower units? A $300 profit margin BEFORE yard maintenance, insurance, and water could be tight... you want to be enough in the black each month to be putting some aside for a fund for when a toilet breaks, or when you have to do repairs in between tenants. You aren't going to be wanting to pay for those things out of your own savings. Do you think you could get higher rents? Numbers are always flexible... you just have to play around with them until you find something that works. Good luck!!!
Thank for taking your time to post. I probably get $50 more on each unit. But I'll probably end up selling it to just get out of being a landlord
You are not taking into consideration other factors...
Your $1,500 a month - $1,200 Mortgage (taxes and PMI) = $300 is correct.
But you can always assume Capital Expenditures and Repairs (I do 10% each) and Vacancy (I do 5%).
So with that amount, you are look at $300 for repairs alone, taking your Cashflow to -0-, then if you set aside the 5% ($75) for vacancy you are in the negative.
And that isn't even taking into consideration an additional estimated 10% for property management (Because you might not always want to manage your own properties).
I would say to 1031 exchange that into something with more cash flow potential for you.
I'm sorry. I'm new to all this but 1031?
Section 1031 of the Internal Revenue Code provides an exception that allows you to defer payment of capital gains taxes when you sell business or investment property if you reinvest the proceeds in similar property through a like-kind exchange. A like-kind exchange means you can exchange property used in your trade or business or held for investment for property to be used in your trade or business or held for investment. Thus, the phrase 1031 exchange was coined from the parameters of this tax code. This may seem simple enough, but there are many steps to take and requirements to meet when actually going through the 1031 exchange process.
Matt gave the high overview well. I would say google it to get more details. There are some stipulations around it that you need to be aware of (such as time frames). But what is nice about real estate is that you can 1031 a single family house into another one, or a multi-unit house or commercial building. It is what allows investors to continuously "trade up" from their previous investments. If you wanted to stick with land-lording for the passive income it is something to look into.
I would begin my search for the next property the moment you put it up on the market though, because of time frames surrounding it.
Thank you everyone. Im reading it on Google now. I think Im going to let it go and buy a single family home. My question Charles you mention time frame. If i sell the duplex will i get tax hard on it and lose?
I have not completed a 1031 exchange yet, I am still a number of years off before I am ready to complete one.
But the premise of it is that you are deferring the capital gains tax payment until a later date.
If you were to sell and not do a 1031 then you would have to pay the capital gains tax on your sale now.
now, bigger pockets has a number of resources that you can reference. It might be worth it to look up a few of those.
Additional Resources: https://www.biggerpockets.com/rei/guide-1031-excha...
Another Article (specifically around the rules): https://www.biggerpockets.com/renewsblog/1031-exch...
And a lot of their pod cast guests talk about completing them. But I do not think they have done a podcast centered around the 1031 yet.
Finally, it is always best to talk to a Real Estate CPA (Certified Professional Accountant) about the exchange and what you need to do. Ensure that you find one that owns Investment Real Estate of their own, as they will be the ones most knowledgeable about it. They will be worth the minor expense of talking to them if they save you multiples more in the taxes.
Thank you so much for the information and the time from your schedule to reply.
Your very welcome. Tag me with an update with what you decude to do. Always interested in what others do.
And if you do the 1031 I would love to know your experience with it.
Don't feel shy about posting any possible deal you find to input from others. Having inpartial eyes look over a deal can be invaluable.
Yes. Thank you I sure will keep you updated.
@Jose M. , If you're deciding the sell that property you will incur tax on the gain as well as depreciation recapture for the time you have owned it. the way to defer this tax and allow you to use the deferred tax to purchase more property is with a 1031 exchange. The 1031 exchange must be in place prior to the sale of your old property but you have a total of 180 days from the date of the sale to complete your new purchase.
If your gain is significant at all or if you've owned that property for a while your tax exposure is probably pretty hefty.
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