All Forum Posts by: Cory Bousfield

Thank you all for the awesome info. I greatly appreciate your responses.

I had plans since I bought my primary for eventually turning it into a long term rental when I move but after confirmation from your answers and my recent awareness this would have turned out to be a $37k plus mistake if I kept it over 3 years as a rental!

It would definately be better in my situation to sell the house and use the proceeds to buy better NOI rentals and not pay the huge capital gains of holding over 3 years.

There is a steep learning curve with real estate investing but all these details and tax avoidance situations are also what can make it great too. Thanks again to this awesome BP community!

Thanks for the response. It's a 4br/2.5b so it's a little bigger than the preferred 3br/1b or 3br/2b home and might have higher turnover considering it's in a price range qualified renters might be looking to purchase their own house. 

I arbitrarily estimated and threw in the $30k depreciation number not knowing exactly how long I would hold it so it wasn't based off of anything in particular. I would plan to hold my investments for the long term though.

Are these calculations accurate though if I sold the rental after 5 years, that the capital gains would be based off of Original Cost and not FMV at Conversion?

I am wanting to make sure I understand this situation properly. Greatly appreciate the replies!

During my home ownership, I have seen significant gains over 8 years. Lets say I want to purchase a new home to live in and convert my old residence to a rental instead of selling it. If I keep the rental for over 3 years to no longer qualify for the home owner's exemption (live in it at least 2 of the last 5 years) and sell it on year 4, is the following table correct?

I was thinking the capital gains was the difference between the sale price and my FMV at conversion, less depreciation and not the original cost. However, after some additional research I saw this table calculation and realized this could be a huge mistake for a medium to long term investment because of the gains during the time it was my primary residence...

In this case if it would make much more sense to sell the house before 3 years of being a rental (to still qualify for the home owner's exemption and not pay any capital gains). Selling it any time after 3 years of converting it to a rental would create a huge capital gains burden. If this is the case I'm much better off selling my house and using the cash proceeds to just buy a rental instead of converting the old house to a rental? 

Thanks Dave. I guess for years I've always had the idea of moving and having our current as a rental. You make some great points though and will definately give me some considerations to think more into. 

Thank you both for your replies. 

@Jul Howe I figured 20% down to avoid PMI but that's one of the great options with a primary residence is you can put 3.5% down instead of 30% for a traditional investment property. $15k down does sound much better than an $80k 20% down and you're right, I was planning for something more turnkey but we could look for something that needs a little TLC and add some value to remove PMI faster. I'll definitely re-run the numbers with a lower downpayment.

@Clay French That's fantastic! I've been blown away at some of the creative finance options people here on BP have used to put no or low money down and this is one of those examples. Great job!

We got into our current first house with $0 down and $12k in repairs using a USDA loan in a rural area 5 minutes outside the city. Worked out great for us!

Hi BP! Sorry for the lengthy post.

Hoping for suggestions on how to best strategize on funding an 80k, 20% downpayment for a new primary residence and renting our current house. 

I've been following the forums and listened to many podcasts and while not yet an active investor have been planning to become a buy and hold landlord when moving to a new residence and renting the current one within the next 2 years. Renting our current house would be a great option for cashflow after rents and purchase price have gone up 75% after our purchase 6 years ago.

Current house would rent for $2k/mo with about $800 cashflow after all costs, upkeep, management costs considered, though I plan to manage it myself.

Option 1) Withdraw 50k from Roth IRA and 30k HELOC (currently at 5%). Benefit is flexibility on purchase date for when we decide to move and keeping our low 3.5% financing but also locking 100k of useable equity in our rental, but also much higher cash flow. Downside: Taking money out of retirement savings.

Option 2) Get a new higher balance HELOC for 80k downpayment from current residence. This also allows flexibility of purchase date (after 1 year seasoning) Dowside: higher adjustabe rate interest that will take a while to pay off.

Option 3) Cash out refi on current residence for downpayment. This brings the benefit of locking in a fixed rate (1+% above current) and the new loan will be fully counted as a an expense against rental income vs the first 2 methods. Downside: 1 year seasoning paying interest on the cash out loan while waiting 1 year seasoning before we purchase and move into the new residence. Also, lower cashflow on the property ($200 vs $800).

Option 4) Open to other suggestions...

I'm honestly a little torn between these 3 methods as we have been aggresively saving 25% of our income in Roth IRA and 401k retirement for the last couple years so I don't have the 80k cash saved for the new downpayment. Looking for advice. Each has it's pros and cons. I'm maybe overanalyzing but it's a tradeoff from liquidity/retirement vs interest rate vs income generation.

Thanks for your suggestions and input! I know for many active investors this is a silly question as you have your processes aligned and don't flinch at these things but I plan to rinse/repeat maybe every 5 years as I suspect we will move to another residence again after a while. 

Reasoning: We are wanting to move into a better school system to provide better opportunities for our child but suspect we'll move out of it again 10 years later when our youngest graduates from high school. We may invest in other rentals during the interim.