Joe Biden Tax Credit Strategy
Ok, so this may be a long lead up, but I'm explaining the whole strategy here. I posted yesterday another topic asking about how cool banks are with letting your primary house sit vacant for 1 year, then using it as a rental after 1 year. The general consensus was that as long as I actually leave it empty they shouldn't care too much. *WARNING* I'm not trying to commit fraud by sneaking a tenant in, that's not what this post is about. So save your anger. I'm encouraged financially by Joe Biden's tax credit to leave the house empty for 1 year. I'll show you why below..... and how we all can potentially make money off of it and get a better interest rate on the mortgage as well!
The GOAL of this thread is for you to poke holes in my strategy and tell me WHY this couldn't work. I'm already aware of one potential problem brought up in the other thread and that is....
- Vacancy Insurance - I am unsure of what the actual premiums would be for this, so I will have to call and get a quote since I was told this is usually higher premiums than rental insurance.
**Strategy**- I found a quick house on Zillow in the area I invest just to use it as a real life example. My numbers used are going to be from real experience as an investor in the same area so I'm familiar with quotes and taxes because that's what my other houses are getting. I'm also not saying this house is particularly a good deal. It's just one that cash flows after it gets rented.
House - 3B/2B 1,500 Sqft.
Purchase - $124,000 (negotiable obviously)
20% Down payment @ $24,900
(Future) Rent - $1,050
Monthly Mortgage payment ~ $522
Taxes (0.4% rate since it's a primary residence), Insurance premium roughly $550/yr (overestimated here)
Joe Biden as my tenant will be giving me a $15k tax CREDIT the following year. So that means he will be paying me roughly $1,250 in rent to leave my property EMPTY, afterward I am free to use it as an actual rental. We can assume a 0% repair and vacancy rate. I would pay my property manager in the area though just to stop by a couple times per month to make sure there's no squatters. I would pay her roughly $50/mo, which is a good deal since she's not managing any tenants or dealing with anybody. Just opening the door, looking around and leaving.
So, my NOI would be $1,200/mo. $1,200 - $522 = $678/mo cash flow for the first year.
Now, there are 2 ways to look at this. Either in cash flow for the first year OR reduced cost basis in the property permanently. Which is how I would analyze it. So I would take my year's cash-flow which would be ($8,136) and put it back into my pocket. So by the time the house gets used as a proper rental, I actually have $8,136 more than I put into the property. So going forward my actual cost basis would be $24,900 - $8,136 = $16,764 + closing costs/rehab which is how I would analyze this property going forward permanently.
Now let me know how this wouldn't work.