First time landlord. Need help please!

Finance
41

I am a US Citizen. I am not moving out of the country. I have 5 different businesses that I operate in two different states. Trying to build some cushion before I retire by working my a$$ off :slight_smile: right now.

1 Like
42

Props to you.

1 Like
43

Sorry, misunderstood your previous post. The advice would still apply if you’re moving out of the state, but with some different considerations.

Regarding the capital gain, you could still rent it out, then later re-establish it as your principal residence. Depending on the timeline, you may have to prorate the gains to rental vs residence periods. There are other possible planning opportunities and scenarios to consider, but those aren’t really appropriate for a forum.

2 Likes
44

Is it taxable or is the value determined at time of conversion to rental?

45

I am glad I posted here. With the ever confusing rental law and knowing more about the capital gain, I have given more serious thought about selling the property. I am working with Real Estate agent to get the commission down to 3%. Let’s see what happens. Another side note that I forgot to mention is this: within the last two months the property appreciated about $20K. The property is in one of the cities in Colorado :slight_smile:

46

In short, you’re investment property must meet the “primary residence and use test”, having been your primary residence for at least 2 of the last 5 years prior to date of sale or be subject to capital gains tax. Your allowable exclusion basis is subject to your gains minus depreciation. See the following link for a more detailed explanation or do a simple google search on the topic: Property (Basis, Sale of Home, etc.) 5 | Internal Revenue Service

47

Also, savvy real estate investors can take advantage of a 1031 exchange. Do your own research and hire a knowledgeable real estate attorney if you are not experienced in this as there are many exclusions to this transfer. Probably not of interest to a first time landlord but it’s worth knowing about.

48

You simply lose the exemption that’s available upon the sale of your personal residence. There’s no immediate effect.

49

The basis at the time of conversion is the lower of your adjusted basis in the residence at the date of conversion (purchase price plus qualified capital improvements), or the fair market value of the property at the time of conversion.

So since his property has gone up in value, the only way he would be able to raise the basis at the time of conversion to a rental would be if he had put that much money into improvements of the property.

50

Is that both seller and buyer commission combined? I don’t know how it works in CO, but in CA the seller pays the commission (~5-6%) which is split between seller’s and buyer’s agents (and a single “dual agency” agent would keep both halves).

51

I’ve seen some video documentaries on the internet that make being a landlord to a broke 18 to 22 year old female seem like it could be worthwhile. I won’t go into specifics but if you google “broke college girl” and “landlord” you might find some useful research information.

1 Like
52

According to that logic, anybody who owns their house free and clear should rent it out. You are talking cashflow. Would your decision change if your mortgage was more than rent, for example due to having a 7 year loan?

Would you buy or rent your own house today (using market rates)? If you would buy it, then rent it out, otherwise sell it.

53

You make a valid point. I think a better question is “do you expect a satisfactory return on your time (to manage and maintain the property) and investment (equity) or do you have something better to do with your time and money.”