I just sold the house I'm living in for a large profit. Because I lived there for 2 years, I avoided paying capital gains tax on it.
I found another house that needs updating that I want to live in for 2 years then sell like the last one.
I am paying $350k for it. It needs $100k in repairs/updates.
Which of these would you do?
A) Pay $350k cash, do repairs only for $50k cash, then get a mortgage (For around $400-$500k) and do remaining updates over the next 2 years?
B) Pay $350k cash, do all repairs and updates for $100k cash (which is all of your liquid funds), then get a mortgage on the full ARV ($500-$600k)?
C) Pay $350k cash, get a mortgage (for $350k),then do $100k in repairs/updates?
D) Pay $350k cash, get a home equity loan for repairs/updates for $100k?
I would like to use some of my cash for purchasing houses using the BRRRR method, and other investments in the meantime.
Well, none these affect your cap gains tax. As long as it will appraise for enough, it’s a matter of how much you want to borrow verses how much equity you want to leave in it, depending on what your goals are.
My goals are to continue to build wealth and my portfolio as fast as possible.
I'd get the biggest mortgage I'm comfortable with and qualify for. Top off my emergency fund & pretax opportunities if I have any.
Diversify by putting balance of gain to work elsewhere.
Hi @Lauren Cooper, sounds like the BP community shared some good insights here. One thing I wanted to throw in there is considering reinvesting the profits into an Economic Opportunity Zone. Opportunity Zones can be used to minimize tax payments or even reduce to zero.
Opportunity Zones were created under the TCJA to;
- Allow U.S. investors to defer all 2018 capital gains for eight years if the profits are reinvested and held in an Opportunity Zone
- Lower the amount of capital gains taxes resulting from the sale of a capital asset by 10% or 15% if the proceeds therefrom are held for five or seven years, respectively, in an Opportunity Zone project.
- Provide for a full exemption from capital gains taxes on all future capital gains on the invested funds if an investment is held for ten years following investment.