Selling a rental within 1 month of purchase

4 Replies

We are getting ready to close on a fsbo that we got for 25,000+closing costs. We initially planned to rent it out, but could probably sell it for at least 50,000 as it is in a good area. If we closed and decided to list it without making improvements and never renting it what are the tax implications?

We bought this property on a whim because it was a great deal, but weren’t necessarily ready to prep a new rental yet which is why I am considering this option.

My plan would be to use the profit to pay part of our current two rentals off on our heloc then look for another rental when we’re ready.

Could you please share if you would/wouldn’t do this and why not? Thanks so much!

One thing to keep in mind. If your buyer is getting a loan, they will probably need an appraisal. The appraiser will almost certainly use your purchase price as a data-point in that appraisal report. It's one data-point of many, but not one they can ignore. 

To minimize the impact of that data-point, and thus minimize (or, ideally, negate) any appraisal shortfall, you will want your Realtor to host the appraisal, and you will want your Realtor to provide documentation (not words, docs) supporting your low low purchase price as having a really good reason. 

For example if you purchased this property 1 week before your sellers were going to be foreclosed upon, document that fact and hand that documentation to the appraiser. The appraiser would then be allowed to use that fact (if documented, again verbal words do not really matter) to minimize the impact of that data-point when arriving at her final opinion of market value.

(Frustratingly, as a loan originator, I'm not supposed to communicate directly with the appraiser before the report is turned in... one person gets one shot, and that one person is one of the two Realtors.)

EDIT: Oh, also, google search "FHA flip rule" and keep that in mind when evaluating FHA-backed offers from potential buyers.

@Chris Mason that’s a great point I didn’t think of that. If I were to do a few small updates would that negate the purchase price appraisal as well? Thanks so much for your feedback. I am a newer investor and didn’t have any intentions on doing flips of any sort, just considering my options with this house!

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@Brittney K. You could always sell the property and say cash or hard money only. If you dont accept any offers that come with financing then you wont have a problem with an appraiser. Just my 2 cents!