Waffling...

2 Replies

So I have inherited a 2/1 condo (not taxed at all) and own a house otherwise (the house is in a marginal area, great for a rental, we want out). My equity on the condo will be ~80k net if sold. Now, there is work to be done on the house before I would consider renting or selling (AC, electrical, paint) that will cost ~15k.

A friend (also an investor) tells me to sell the condo (or 1031 exchange it), rent out my home and buy (exchange to) a nicer one for us. Now, here in Sacramento, values are very high and I will have to come in with a low down payment on a new(er) home and a high mortgage to boot. Hmmm. Kinda dicey.

My friend's reasoning: I will have a greater equity gain on a house and perhaps a better income (again, renting out my current house instead of the condo).

Then there's the other thought of selling the condo now and putting the equity into a cd, gambling that the market will flatten or dip, and buying low.
http://money.cnn.com/2005/07/14/real_estate/buying_selling/cashing_out/index.htm

What would you do? Thx. Chris

So I have inherited a 2/1 condo (not taxed at all) and own a house otherwise (the house is in a marginal area, great for a rental, we want out). My equity on the condo will be ~80k net if sold. Now, there is work to be done on the house before I would consider renting or selling (AC, electrical, paint) that will cost ~15k.

Is the condo free and clear? Currently renting this out? How many B/B? Why would you screw up the assessed tax for a 1031 exchange. Real Estate in CA is better than stock market or CD today. Also call me and I will give you a good local bank in Sacramento, CA that will give you your 15 K to rehab your property so you sell the home and get a bigger one in Elk Grove, Natomas, or Roseville.

A friend (also an investor) tells me to sell the condo (or 1031 exchange it), rent out my home and buy (exchange to) a nicer one for us. Now, here in Sacramento, values are very high and I will have to come in with a low down payment on a new(er) home and a high mortgage to boot. Hmmm. Kinda dicey.

Dicey like ginsu knifes at the California State Fair. Screw that if you wanted to just option arm both properties once your done rehabbing the SFR. Low Payment if your FICO is strong you would have to come in with nothing but closing costs. High mortgage again try the option arm or pick a payment.

My friend's reasoning: I will have a greater equity gain on a house and perhaps a better income (again, renting out my current house instead of the condo).

Have your friend show this to you on paper and than fax to me I would like to see how this could be possible especially when the equity in Sacramento Region is going up 30% year. Geez I made 90 K on my 3/2 home from last year. You dont think this will happen again this upcoming year? I dont see a major slow down. No bubble going to burst out here in Sacramento especially since you can drive in a 5 mile span of Elk Grove and see every major builder clearing land to put up those 375 K starting homes.

Then there's the other thought of selling the condo now and putting the equity into a cd, gambling that the market will flatten or dip, and buying low.

I would gamble on Carribean Poker before that choice or the wheel of money. The market will hold in a year. If not here than look at AZ, FL, and NV markets holding strong and investors are flooding the market. I know that is AZ investors are highly welcome.
http://money.cnn.com/2005/07/14/real_estate/buying_selling/cashing_out/index.htm

Read some of the article on Real Estate News to your left or try www.bankrate.com. Great article for you and your clients.

What would you do? Thx. Chris

I would definatly not sell the condo especially with the low taxes. If you want to dip into the equity than cash out refi and option arm. Rehab the home, cash out refi and put into an option arm. Buy property in FL, NV, AZ, VA and enjoy the market. Better than CDs at least for the year. I am sure some of the seasoned vets have better thoughts but again this is just what I have seen, read, and have been asked a lot. Read your matrices and ask your Account Executives. Also you might want to come join me and my boss who can give you a much better perspective on how to invest your money. :rock:

Well, some things aren't totally clear from your post, so I can only answer based on guesswork.

You inherited the condo, and thereby received a STEPPED UP basis, if you sell it there's NO GAIN, so NO TAXES. Since it's not now an INVESTMENT PROPERTY (at least you don't say it is) you CAN'T 1031 exchange it.
Since the exchange is simply a way to postpone tax on a gain, and you have no gain, it would be pointless anyway.

Also, you can't exchange your residence, it's your residence. If you sell it you can pocket the gain, as long as you've lived there 2 of the past 5 years, up to $250K single, $500K married filing jointly.

Before you decide to rent out, or sell either one you need to evaluate the RENTAL MARKET, versus the VALUE OF THE PROPERTY. I'm having a hard time believing there's a condo in the SACTO area with a FMV of only $80K, or did I miss something in your original post.

Let us know more.

Frank