All Forum Posts by: Marcy Moyer

The answer to that question should be based first on; Do you want to live in that neighborhood enough to live on a busy street? If yes, then move in. Keep in mind that if you do move in you start the clock and after a few years you can sell and take your 500K capital gain exclusion. You will need to speak with a tax expert on recapturing depreciation, etc. but I believe that the value when you convert it to  to primary residence is your basis. 

If you do not move into that house do you have someplace else where you do want to live? Can you afford to live in a neighborhood that you do like?

If you do not want to live in the house you can rent it or think about selling sometime while the market is still so hot. Homes on busy streets, next to a train, or with odd floor plans sell easily when the market is good. However, when the market drops they are much harder to sell when there is more competition. 

Are you in a position to keep the house if the market turns down?

I own rental properties, and live in an apartment myself. I prefer to live where I want to live and use my money to invest where I want to invest. In my case I invest in Santa Cruz, but I am probably in a different place in my life than you are.

Amish,

I think investing in California is a great idea, especially with the reasons you would like to stay here. However, depending on the property, 25% down may give you a negative cash flow and many lenders will want a 30% or more down. On the plus side, the market is up another 10% in many places since Jan 1 of this year. Fremont is one of those areas. So, you may have more than you think for a down payment. There are currently 26 4 plexes on the market at 1.5 mil or less in Alameda county. If you are going for young tech workers the higher the walk score the better rent you will get. If you are looking for young families, obviously the higher the API score of the area schools the higher rent you will get. The other thing to keep in mind is the condition of the property, especially the big ticket items like foundations and roofs. Owning a 4 plex is different from a rental condo: more work, more expense for repairs, but no HOA fees, and no dealing with HOA problems. I also really like the potential of rentals in Santa Cruz county for the high rents and incredibly low vacancy rates, or in Morgan Hill /Gilroy since San Jose is getting so expensive and tech companies are moving south, so more people are moving south as well. I personally believe investing where you live has such huge benefits including: understanding the market and control over your investment, as well as historical appreciation of probably the best in nation, that it is worth a lower CAP rate for greater long term wealth.

Ian,

San Jose real estate is selling really quickly and for very high prices right now. If you sell now and and you own the home with a spouse you can use the 500K profit any way you want.

If you own it as a single many than you will be taxed on 250K worth of profit unless you do a 1031 exchange and buy other investments of equal or great value.

So the answer to the question of paying off the mortgages on your other properties or investing in another property, or holding onto the San Jose home depends on your needs and goals.

If you want appreciation then holding on to the San Jose home is fine, but the longer you hold it, the higher your tax bite when you sell, unless you do a 1031 exchange. Also when you do sell it and do an exchange, if you have a loan you will need to buy something of equal or greater value and include the amount of the loan to avoid paying capital gains taxes.  So if you owe 300K on the mortgage and sell for 850K you will have to buy another property for about 800K in order to avoid paying capital gains tax. You can subtract your cost of sale. You will need another mortgage of 300K and the 500K profit. If loan rates are much higher than your current loan you will reduce your cash flow.

If you want cash flow then selling it and paying off your other mortgages is the way to go.

If you are going to have to pay the 250K capital gain because you are the sole owner and want better cash flow than you can do the exchange, not pay capital gains, and purchase someplace with the loan + profit, but with better cash flow. The more expensive the neighborhood, in general the lower the cash flow. 

Again, you should check with a tax person to verify you do not have something specific to your situation that goes against what I am saying.

Ian,

As was stated you get a $250,000 capital gains exclusion if you are single, and $500,000 exclusion if you are married if you sell your primary residence. The rule is you have to live in your home 2 out of the last 5 years of ownership for it to qualify as your primary residence, so renting it out is fine for a few years before you sell it. Check with a tax professional in case there are any quirks in your situation.

Kajal,

The new ADU law covers all of California, but each city gets to determine it's own regulations. So, the answer depends on what city the property is in.

In general:

1. The ADU can be up to 750 sq ft.

2. All of the cities I am aware of restrict rentals on the property unless the owner is living in one of the units. So, you can turn a single family home in to a duplex and rent out both units.

The set backs, parking requirements, fees, etc are determined by the individual city.

What this means investment wise is homes with the potential for an ADU are great for flips, but not good if you are trying to buy a rental property.

It is only one page. I can email it to you if you message me with your email. I don't have  hard rule for income needed. I base it more on credit score and how much it would hurt the co signer is the leasee does not pay. 

Since I rent to so many students I have parents co sign all the time. They sign as a guaranteer of the lease payments. I get a credit check and income verification for them but they do not sign the lease as a tenant. I have a separate form for them to sign as co signers.

Just write an addendum extending the time for expiration and have all parties sign. You might also think about switching to a company with better support. I love being with a company in the cloud. Someone is always there to help.

Glad to hear you are going with 30 year fixed. One good reason to do this I want to add is that if housing appreciates at even a modest 5% average per year your appreciation will be well over the 500K capital gains exclusion currently in place for primary residence. At that point it is often not economically easy to justify selling and paying the huge capital gains tax. No matter what the Fed does, California tax is 13% at the top rate and unless the tax law is repealed will not be a write off on Fed taxes.  Bottom line, selling your primary residence after 10 years of appreciation may not make sense so having a fixed rate may be VERY attractive.

Everbank has a loan where you can purchase and rehab but I believe you may need 20% down. Open Advisors also has that type of loan. You can get an FHA rehab loan for as low as 5% down I believe. After the rehab is finished you can refinance into a long term loan if you do not sell.