Moving abroad but turning primary home with equity to rental.

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Moving abroad but turning primary home with equity to rental.

Account Closed
MA · Member since 2015 · 59 posts · 9 votes

Hello, trying to figure out some plans to move abroad and rent out my primary home. I have high equity on it and almost free and clear. I’m also in between jobs, partner is self employed but work has been intermittent over the last 3 years. I currently have cash but only enough to buy a home abroad and it leaves me little to work with to move and settle in and get the home rented. I want to keep my home as an investment property and leverage it. I considered a Heloc but the no job situation will mean I don’t qualify. Is a hard money loan or one of those real estate investment Heloc alternatives such as point or hometap a good way to get equity out now? When the property is cash flowing for Let’s say a year or two I can refinance, or sell and pay back the loan plus their share of the property value. I would do refinance or do 1031 to a better property. Is something like hometap a better option than a Heloc which would be variable interest. Also by renting out my home is it considered a commercial property then? Open to other strategies here. To achieve my goals

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y

Yes. And if the gains are over $500k there is ZERO chance I would give up that tax exempt gain. If you’re going to stay overseas I like your idea of doing a 1031 in to a state with no income tax to also save that money while it’s a rental and if you eventually sell. 

I’m not sur what the 1031 requirements would be for a partial sale. @Dave Foster

If someone bought a house for $600k. Live there for 7 years then rend it out for 2 years and it was worth say $1.5million. What’s the math on that? How much does the 1031 have to be for with a $600k basis, $500k tax exempt 121 exclusion, $1.5mil net sales and $400k gain left over? Is it just the $400k of excluded gains, the $1mil left after the $500k tax free gain, or some other number I didn’t think of?

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Has it not appreciated since you bought it? I’d hate to turn a massive tax free gain in to a taxable one. You would be way better of selling and buying the identical house as a rental. If that sounds like bad idea, so is making it a rental. With the swap you’d capture all the tax free gain, increase your basis and deductions. But I’m guessing you’re going to say the returns would be horrible. But that means the same with your current property PLUS the giant tax hit. UNLESS you’re going to say it hasn’t appreciated. In which case you should just sell and move on. 

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  • Account Closed
    OP
    MA · Member since 2015 · 59 posts · 9 votes
    4y

    @Bill Brandt thanks for this. I didn’t realize I would lose the section 121 but I’ve lived here coming onto 7 years. It’s appreciated. So if I were to turn it into a rental, take all the tax write offs and then sell in 2 years. I could avoid capital gains on 500k (I’m married) and the remainder I can 1031.

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    Yes. And if the gains are over $500k there is ZERO chance I would give up that tax exempt gain. If you’re going to stay overseas I like your idea of doing a 1031 in to a state with no income tax to also save that money while it’s a rental and if you eventually sell. 

    I’m not sur what the 1031 requirements would be for a partial sale. @Dave Foster

    If someone bought a house for $600k. Live there for 7 years then rend it out for 2 years and it was worth say $1.5million. What’s the math on that? How much does the 1031 have to be for with a $600k basis, $500k tax exempt 121 exclusion, $1.5mil net sales and $400k gain left over? Is it just the $400k of excluded gains, the $1mil left after the $500k tax free gain, or some other number I didn’t think of?

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  • Account Closed
    OP
    MA · Member since 2015 · 59 posts · 9 votes
    4y

    @Bill Brandt that’s a good question on what amount can be exchanged with your thought exercise here. From what I have read it would be $400,00 of the gain can be rolled over into the next property after exempting $500,000 with section 121. My question is does the 1031 property have to be worth the same or more than 1.5 million. If it is in fact 1.5 or more. Let’s say 20% down payment on a 1.5 is $300,000 I pay from the 500,00 profit minus state income tax. Plus the 400,000 rollover, I would need a loan for $800,000. This is where I need to do more calculations on what would the appropriate cash flow needed to be to cover the mortgage and expenses. I have read 1% rules, cash flow of 8-10%, cash on cash. What calculations do I run usually? I’m sure this is in some book by bigger pockets.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Bill B. @Account Closed You're correct the reinvestment target would be $1mil.In order to completely defer all tax for a 1031 you have to purchase at least as much as you sell and use all your cash proceeds to do so. In this instance you would sell and do an exchange as you normally would, then take out $500k in BOOT. At the end of the year have your CPA write that off as section 121.

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