Cedar City, UT · Member since 2018 · 3 posts · 0 votes
I have been working on my fIrst RE deal doing a live and flip for the last 3 years and am just about finished with completing the flip. Bought the property for about 90 and put maybe 10 into the property. Local prices have increased to where I could sell for at least 145k. I was planning on just turning it into a college student rental and could rent the home for about 1200 a month. I don’t know if I should keep it for a rental or sell it for the gains so I can have more capital for my next deal. Any advice would be appreciated! Thanks!
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Lance Brown, you probably won't clear too much in the way of cashflow. That being said, what about renting it for a year to see how it does? You'll establish it as an investment, then you can sell and use a 1031 to roll the money into another investment property. If you sell now, I believe it would be considered your personal home and they only way to avoid capital gains is to use the money for your next personal home (*I'm not an accountant).
College rentals can be a good business, but they do mean more wear-and-tear on the property and a bit more work on the management side.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Lance Brown, you probably won't clear too much in the way of cashflow. That being said, what about renting it for a year to see how it does? You'll establish it as an investment, then you can sell and use a 1031 to roll the money into another investment property. If you sell now, I believe it would be considered your personal home and they only way to avoid capital gains is to use the money for your next personal home (*I'm not an accountant).
College rentals can be a good business, but they do mean more wear-and-tear on the property and a bit more work on the management side.
Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
7y
You can sell it now and avoid capital gains because you have lived there for at least 2 of the last 5 years. If you decide to keep it you could cash out refinance and use the funds for your next project, or get a line of credit against it. Many options to consider.
If you hold it for a year as a rental you get to see how it really performs - college rentals are iffy and the move out costs tend to be higher, kids are tough on RE. If it does well, great, you've got your self a rental investment. If it's just so-so or doesn't flow, tenanting issues are a nightmare, whatever, you can qualify for a 1031 as Jaysen said, and move all that value tax-free into other RE.
OR, since you will still be meeting the 24-month rule for the Sec 121 exemption (technically you will qualify for that exemption as long as you sell within the next 3 years), you could sell it normally and take the capital gain tax-free. You would have to consider the depreciation recapture tax for the year you rented it (and remember, the IRS doesn't care if you actually take the depreciation deduction, they only care if you could have taken it, so always always take it, they'll come for the recapture tax regardless). But, if you only rent it for a year and the value is $145k, you're only looking at a tax bill of about $1300 (assuming all the value is attributed to the building and not the land, which it won't' be, so your bill will be a bit less).
OR you can combine the Sec 121 exemption and the 1031. The Sec 121 would allow you to take the gain tax-free, and the 1031 will allow you to roll the remaining value into new investments, also tax-free.
In any scenario, you'll need to talk to a CPA, a Qualified Intermediary, or both, but the point is you have options here.
If you want to learn a bit more about the rules and regs for the 121 and 1031, and how to combine them, check out these articles: