All Forum Posts by: Aaron Bry

I'm amazed that you found a house in California for under $300,000, that is a miracle in itself!

We actually did this - convert our primary to a rental - some years back and it's doing great. In the year after we converted it to a rental I also assessed the benefit of selling to save on the capital gains tax but the amount of tax saved was coming out to be equal to the cost to sell (primarily agent commissions)

Looking at the numbers I don't think your decision to buy was a mistake - why do you think that? Seems like it would be cash neutral if you rented it now, and that too with so little equity.  Is buy and hold a long term goal for you?

If you wanted to sell it might make sense to wait so your profits aren't gobbled up by costs. The commute does not sound like fun at all though. So if you are planning to move I would recommend saving for a down for your next primary/ duplex and not paying down this loan beyond the necessary monthly payment. That way selling this house is not a prerequisite even though you are free to do so when the time comes.

Hey @Aaron Bry! Great question!

A good rule of thumb to use for the costs of selling the home is 8% of the sales price. That will cover the 6% average commission you will have to pay, and leaves over 2% for title insurance, escrow fees, transfer taxes, etc. that will also be a cost. So IF you sold for $295k you're probably looking at somewhere between $270-275k minus your loan amount of $256k. BUT -- you will have to order a final payoff amount from your lender to TRULY know what you owe them, because you may have prepayment penalties, impound accounts, etc. that may take even more money out of your pocket.

Also, as @Tim Jones said, you really need to have an experienced agent perform a CMA for you, as there may be several other things that affect value that you're not accounting for (telephone poles, lot size, location on street, etc.) that will affect your value. If you send me a message with the address, I'll run a quick one for you just to see how an agent would view it. No obligation. Sellers tend to view their property in the best possible light and nearly ALWAYS think the property is worth more than it is, simply because they are unable to look at it objectively.

As for Redfin and their discounted commissions... I would pass, and would tell any homeowner that. How can an agent who specializes in less get you more for your property? Makes no sense. 1% saved in commission is only $3,000 for you and that's REAL easy to blow by selling your home for less or simply losing in a negotiation. Any agent worth a lick will not be working for Redfin. Plain and simple.

Also, if it's possible for you to put enough down to refinance and eliminate PMI (which requires 20% equity) then you may likely be able to purchase another property anyways with 20% down. Assuming you have good credit, solid work history, etc. lenders will generally be ok with a second loan as long as there is 20% down because they know you wont walk away from it because it'd be easy to sell (so no foreclosure for the bank).

My advice is to talk to your tax adviser, talk to your lender, and see what's possible. Then you can see about talking to an agent and how you can make the numbers work. Best of luck!

@Aaron Bry

As you can see Aaron, lots of good insight here! 

You mentioned comps, but have you had a local realtor come and see the condition of your home and prepare you a proper CMA? You mentioned that improvements were made. It would be best if you had some more concrete info before making a decision. Also, it's not too hard to sell it yourself through a title company and save yourself 6%. We're in a strong seller's market here in the Central Valley.

Another thing to consider is both your local and national market. I feel that our prices are approaching 2004-2005 levels, just before stupidity took over and banks gave loans to dogs, cats, etc. If you feel that you're possible in a bad investment now, how would a 10-15% market correction affect you? I can't say if or when it would happen, but are you prepared? 

Just some things to consider along with all the rest...

TJ

Based on my calculations if you sold for $295k you would have proceeds of about $277k so you and your brother would have roughly $10k each. 

If you move, where would you move to? 

Sounds like you're learning the right things. I cringe whenever I hear people talk about renting out their house after they move out. Almost every time, it's a bad investment, (rent:value ratio is way off), they have no idea how to be a good landlord, or both. Usually both. Fortunately, it sounds like you are at least figuring out how to properly assess your situation. That's a lot more than most people I talk to (outside BP).

One other note: with a $300k investment, you can get more than your $1500-1800 range. You should be able to find a duplex that rents out for over $1000/side. 

You do not need to worry about capital gain, because there is none. When you sell, there is about 10% related fees, that will wipe out your capital gain.

In general, I recommend you holding onto your property, too. Frequent buy and sell eats into your profit. Also I guess you have a pretty good mortgage rate. I believe the house price in CA will go up in the long run.

I'd be careful with your rent projections. The last couple years have been hot. Owning a rental in the hopes of future rent increases is a risky business. I wouldn't do it.