All Forum Posts by: Steve Maye

I am interested in moving back to my hometown.  I found a property on Auction.com that I am interested in.  I have never bid on a property at auction and need some advice.

I realize I need to do my due diligence.  I was able to drive by the property while I was in town for Thanksgiving.  Due to timing of the trip I was not able to go by the City Recorders office to research liens.  I don't see paying an exorbitant sum for a title company to research this if I have little chance of winning the auction.  Does anyone have a tip on how I can research this property from 600 miles away?

Could someone walk me through the financials on this?  I will be moving soon.  I could pay for my next personal home cash, but it dawned on me that with low interest rates I might be better off getting a mortgage and using the additional cash to purchase another rental property.  

The thinking is the interest rate on my home mortgage would be outweighed by the return on the rental property.  Does this make any sense?

@Steven Hamilton II

Hello Steve,

That would depend. What was the Fair Market Value when you converted it to a rental? Your loss would be based upon what was lower.

Your basis was $380,500. If Fair Market Value was lower at that time it would have been your basis for depreciation as a rental. Your gain/loss from there would be calculated. I suspect the fair market value was lower at the time of the conversion to rental as I paid too much to begin with during the time the market was falling.

Those costs will be deductible as your treat it as a rental; however, that would only be from your adjusted basis. I thought I was told above that the home had be used as a rental for a period of 3 years in order to claim a loss on my taxes.

Is it cash flowing? If so why not keep it Can you refi? Can you get the bank to streamline the loan? Cash is flowing. Making about 4%. The property is fully paid for. I was just looking at getting the money out of it.

@Steven Hamilton II

Update to the saga. I decided to see if the renter wanted to buy the home. He does and has made an offer. I have a few questions. Can anyone help?

• I paid $367,500 in 2010 for a personal residence
• I invested about $13,000 in it then
• I started renting it July 2012
• The renter's offer to buy is $328,000
• If I agree to his price there will be a substantial loss
• This home has only been a rental unit for about 1.5 years, so I guess I cannot claim the loss between what I paid and what I sell it for?
• There will be real estate fees and closing costs. Can these be deducted on my taxes?
• Is there any other strategy I should be considering to minize my losses?

@Steven Hamilton II

I can have some backdated comps run. I know I overpaid for the property back in 2010. I suspect the backdated comps at the time I first rented it last year would be similar to now, so maybe there is nothing I can do about claiming the loss. There is a good chance the current renter wants to buy the home. I am sure at the current low market value. I think he would also really like me to finance it for him. Not so interested in financing him.

I am sorry, but I am not sure what you mean by pulling some cash. Take out a first mortgage?

@Steven Hamilton II

I don't remember mentioning being underwater. The reason this doesn't make sense is I have no mortgage on this property. It is paid for. If I sell now I expect to lose about $69K (original purchase price - selling price). Current ROI is only 4%.

"When you converted it to a rental the new basis for that purpose is what you paid for it. Any amount over FMV on the conversion date is personal basis and you essentially lose it unless you convert back to a principal residence."

I suspect the FMV at time of conversion was probably about $350K at that time. How is fair market value calculated after the fact for these purposes?

I want to sell this property. The ROI is positive, but low. I have a lot of money locked up in it that I would like to get out. I will take a real hit from reduced home values over this period. I am looking for a strategy that will minimize the financial pain.

In 2010, I purchased my single family residence and thought I was there to stay. In February 2012, I was relocated out of state. Due the still poor real estate market I elected to rent my home. I want to sell the property at the end of the 2 year lease in July 2014.

I know the property is not worth near what I bought it for in 2010. Can I claim that as loss for tax purposes? My CPA told me I could not because I have not used this as a rental long enough, but was unsure how long I would have to own it to be able to claim the loss.

I would like to find a CPA that is knowledgeable in real estate rentals and would do my tax returns. Can someone offer some pointers on where or what to look for?

Sorry for the late reply. Digesting what you have written. Can't say I am 100% with you. Still need to apply it to my case. Something did dawn on me though that I would appreciate feedback on.

If I make only $100 profit per month thats $1200 per year (before taxes) on an investment in this case of $40,000. That is only 3% per year? Seems pretty low.

Am I looking at this correctly? Or are there other factors that make this investment better?