Should I sell now or wait till October?

Question

I am in the middle of a Live-in flip (purchased in October of 2019).

My original plan was to wait 2 years to avoid capital gains taxes.  I am just worried that we are in a bubble and I want to capitalize before it pops.  This is a 1 bedroom condo that does not make sense to rent out.

Purchase price: 390k

Rehab:  30k

Current value: 485k

When I say 485k, I mean that if I put it on the market for that price today then it would have 10 offers for that price within a day.

So the main question is:

Do I sell it now and pay the higher taxes on the sale, or do I gamble with waiting till October to avoid paying capital gains taxes?

Dylan Vargas · Answer

@Ryan Cleary Welcome! After purchase, rehab and selling costs you are looking at taxes on 35 to 45k approximately. I personally would sell if you want to as this would be a nominal amount of money. Not a CPA but the cap gains rate would be  low on this profit. Say 0 to 15% based on your financials. Good luck and keep us posted.

Ryan Cleary · Answer

That would be great if I were in the Long Beach, CA market, but I am on the other side of the country haha.  If there was any chance of cash-flow I would have no problem renting it out but I would be negative cahs-flow at that point.  I agree with Paul "There is a "cost" of uncertainty itself, and right now you have relative certainty"

Karen McDaniel · Answer

Capital gains taxes could go up in current admin, so if you sell it in 2021 prior to October and the gains rates go up, you might pay more.  If you hold 2 years, aren't you going to be relieved of any tax burden in a primary residence?  Closing on a property in NY can take a while.. could always list in August since it would be unlikely to close before October anyway.  My first primary was in NY and I think it took 2 mos on average both when I bought and sold.

Paul Moore · Answer

Congrats @Ryan Cleary!  It seems to me, when looking at NY property value swings from past downturns, that you may be better selling now while the market is so hot.  It seems you'll only have capital gains for the tax % times about $65k minus commissions and closing costs.  So about $12,000 plus NY state capital gains taxes (if any).  If the market swings wildly lower then your potential loss is significantly more than that.

There is a "cost" of uncertainty itself, and right now you have relative certainty.  There is a corresponding benefit for having cash in hand if there is a crash, and that may be your biggest profit-maker if you sell now (assuming the market crashes).

Ryan Cleary · Answer

Thanks for the reply Mark!

Well I use this property as my primary residence.  Can you 1031 your primary residence?

Basit Siddiqi · Answer

You can't 1031 a primary residence.

Jenna Sutherlin · Answer

Hey, Ryan! This is cool! Good for you!!

I don't have all the steps memorized but I've heard from seasoned investors that you can 1031 your primary residence after going through some hoops to not make it your primary residence... ie: move out and rent it out. It takes a bit of time but might end up being the best of both worlds (save money and make money).

I'm in Southern California and we keep waiting for the "bubble" to lose someair, and yet the prices keep climbing steadily and intensely.

Mark Smith · Answer

I see two risks looming:

1. Market crash and you are in a location what could see the values pull back

2. The incoming administration could drastically change the capital gains tax rules so your waiting may be for naught, it just depends on which issues they decide to go after first in the bucket list of punitive taxes and give a ways they have planned for us.

Couldn't you 1031 exchange it?

Bill B. · Answer

You sell for $485k and you net $450k. You have $420k in to it. You’ll be lucky to make $30k, and owe $4,500 in taxes. That’s not enough to change what you want to do, do whatever you want. But things to consider.

A) That means if you live in for 9 more months you’ll essentially be paid $4,500 to live there. Ps. You could list it in 7 months and close in 9.

B) I assume this means you plan to sell and become a renter s you obviously wouldn’t purchase today at higher prices and incur buying/selling moving costs to buy another property right before your expected down turn.

So now add 10 months or rent to $4500 and that’s how much you need your property to go down just be even. All this when there’s at least a 50/50 chance your property will be worth more.

What are your plans if after renting for 10 months properties are more expensive? Rent for the rest of your life or admit you made a 20 or $30,000  mistake trying to predict the future? It’s a place to live. It doesn’t need to be a perfect investment.

Should I sell now or wait till October?

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