Flipper/Rehabber · Cincinnati, OH · Member since 2022 · 72 posts · 28 votes
Hey guys - i just bought my first house. Turns out the inspector missed the house foundation issue.. the house has a sinking foundation and I don’t wanna pay to fix it. 16.5k quote before leveling floors.. I paid 183k and it appraised for 215! I’m currently doing updates but the sloped floor drives me NUTS. I don’t know if I wanna live here much longer but I don’t wanna pay taxes on my capital gains. I know I could make money on this house if i sold it after updates. Don’t know what to do. Kinda just want to buy another house with 5% down (lender told me I could whenever I want) and offload this one while I can…
Thoughts? Advice?
Thanks!
Oh- I am also a realtor so when I buy a house I take a commission on it and use for downpayment. Also don’t pay to list it. I would only have to pay the buyers agent 3%.
…. He lives in he property. You cannot 1031 owner-occupieds
OP, you are perfectly willing to accept the other repair costs, closing cost, moving cost, 3% agent commission, but somehow you can’t live with any taxes on your profits? Sounds like the tail is wagging the dog here! Just sell the property and pay the taxes. It means you made a profit on an overall bad transaction. Take the win and move on!
Would it cashflow as a rental? A regret of many investors is selling properties instead of just holding. Would you need to sell the house in order to purchase the next one?
Would it cashflow as a rental? A regret of many investors is selling properties instead of just holding. Would you need to sell the house in order to purchase the next one?
Yes it would cash flow about $5-600. I just don’t know if I’d qualify for another house if I sold this
How bad is slope? Not an expert on these types of issues but is it going to keep getting worse or just stay where it is?
That’s the thing - I don’t know how much worse it’ll get if I wait 1-2 years to sell it, that’s why I’m thinking about just eating the capital gains tax
So you’re beyond 1 year to make it capital gains instead of regular taxable income? That’s a start. But making it tax free at 2 years would be nice.
Luckily you’re only talking about a $20-$25k gain after closing costs before adding any costs to update it. Since you’ve owned it a year you’re talking 15% or $3k, less than half of what you’re going to give the buyers realtor. Sounds like a no-brainer.
How bad is slope? Not an expert on these types of issues but is it going to keep getting worse or just stay where it is?
That’s the thing - I don’t know how much worse it’ll get if I wait 1-2 years to sell it, that’s why I’m thinking about just eating the capital gains tax
Won't you have to disclose this to perspective buyers? If so aren't you going to eat the 16k either way, whether it's on the sales price or in the repair?
So you’re beyond 1 year to make it capital gains instead of regular taxable income? That’s a start. But making it tax free at 2 years would be nice.
Luckily you’re only talking about a $20-$25k gain after closing costs before adding any costs to update it. Since you’ve owned it a year you’re talking 15% or $3k, less than half of what you’re going to give the buyers realtor. Sounds like a no-brainer.
How bad is slope? Not an expert on these types of issues but is it going to keep getting worse or just stay where it is?
That’s the thing - I don’t know how much worse it’ll get if I wait 1-2 years to sell it, that’s why I’m thinking about just eating the capital gains tax
Won't you have to disclose this to perspective buyers? If so aren't you going to eat the 16k either way, whether it's on the sales price or in the repair?
Yes I will - I would not be able to sleep at night knowing I did not disclose even though I could probably get away with it. I am not that type of person to not disclose something major yanno?
If you paid $183K and it appraised at $215K, then with the renos you're putting in, how much capital gains would you pay? Is the floor really that bad (if so why didn't you notice it when you looked at the place before putting in an offer) or do you think it is worse than it is because you now know about the foundation? Now that you know the foundation is a problem, you will have to disclose that when you sell it which may lower the price.
I could do that - However when you fix a foundation problem it is 2 step. It is stopping the problem (most times super costly) then fixing the leveling. When you jack up a house a large amount it cracks everything that has settled over the years. Drywall, windows, door frames, you name it..
Also my girlfriend lives with me so she pays half. The mortgage is cheap between the two of us
…. He lives in he property. You cannot 1031 owner-occupieds
OP, you are perfectly willing to accept the other repair costs, closing cost, moving cost, 3% agent commission, but somehow you can’t live with any taxes on your profits? Sounds like the tail is wagging the dog here! Just sell the property and pay the taxes. It means you made a profit on an overall bad transaction. Take the win and move on!
If you don’t want the house. Don’t want to fix it. Don’t want to pay the taxes on a profit. The easiest solution is just sell the house for what you bought it for then you don’t have to fix anything or pay any taxes. Easy peezy.
The smart choice is deal with it and fix it and sell it and pay taxes (or keep as a rental), but non smart choices are made everyday in RE.
…. He lives in he property. You cannot 1031 owner-occupieds
OP, you are perfectly willing to accept the other repair costs, closing cost, moving cost, 3% agent commission, but somehow you can’t live with any taxes on your profits? Sounds like the tail is wagging the dog here! Just sell the property and pay the taxes. It means you made a profit on an overall bad transaction. Take the win and move on!
Couldn't agree more. You are in a position to get out of a bad deal AND make a profit. In this scenario you should be looking at capital gains tax as a great problem to have.
Hey guys - i just bought my first house. Turns out the inspector missed the house foundation issue.. the house has a sinking foundation and I don’t wanna pay to fix it. 16.5k quote before leveling floors.. I paid 183k and it appraised for 215! I’m currently doing updates but the sloped floor drives me NUTS. I don’t know if I wanna live here much longer but I don’t wanna pay taxes on my capital gains. I know I could make money on this house if i sold it after updates. Don’t know what to do. Kinda just want to buy another house with 5% down (lender told me I could whenever I want) and offload this one while I can…
Thoughts? Advice?
Thanks!
Oh- I am also a realtor so when I buy a house I take a commission on it and use for downpayment. Also don’t pay to list it. I would only have to pay the buyers agent 3%.
Comfort in living and investment is important. You don't want this to come back and bite you. If the issue won't get worse and is more of a cosmetic item, then see what you can do for rent. Otherwise, probably best to get the repairs done and then assess. Structural issues don't get better in time (lol) and trying to sell will just cause red flags if it was recent when they review property history.
So you’re beyond 1 year to make it capital gains instead of regular taxable income? That’s a start. But making it tax free at 2 years would be nice.
Luckily you’re only talking about a $20-$25k gain after closing costs before adding any costs to update it. Since you’ve owned it a year you’re talking 15% or $3k, less than half of what you’re going to give the buyers realtor. Sounds like a no-brainer.
I dont know how capital gains really works but i thought if its over 1 year and under $40k its zero taxes. if its in the next bracket its 15% and if its less than a year its regular income. is that correct or is it different because he is living there?
Yes I might do this - I have another foundation guy coming next friday to see if he has another solution. If I can fix the problem correctly and its not toooooo much money I may just keep it and rent until I hit the 2 year mark..
@James Robert I'm literally in the same boat except I got this property in Dec 21. It's a house hack that I used an FHA loan on. I could cash flow around 500$ but my foundation is also really bad. I put in about 12k of work and hate to sell in addition with capital gains tax after all that work.
I was wondering if anyone on here can chime in. I also got a new job that requires me to travel so I'm thinking of selling due to work and will be able to do so under FHA rules. I'm not that well versed with those laws though..
@James Robert did you walk the property? If you didn’t notice the sinking foundation then I can’t imagine that it is a massive situation. Maybe stop the sinking and don’t raise the floors up. So there’ll be no other damage. If you didn’t notice them why would anyone else? Am I missing something here?