As a Real Estate broker and Mortgage broker. I say do it. You hold it for two years and you will not pay capital gains tax. One the first 250k single or 500k married. An option to pursue to avoid the Private mortgage insurance is to finance it at 100%ltv through an 80/20 loan. Especially if going into it you already have 10k in equity. Location is very important as was previously mentioned. Most of the homes here in Miami are selling for over appraised value. And yes the real estate market is slowing down home sales are down 20% and condo sales are down 23%. Another thing, do not get the loan with longer than a 2 year pre pay penalty. Anybody else that is in Miami, florida. I will gladly help you with your real estate or financing needs.

 

That's 500k in CAPITAL GAINS - for married couples. If you bought the house for 500k you would have to sell it for 1,000,000 to reach this maximum. And of course live in it for at least 2 years. Even if the real estate market rebounds that would be quite a stretch. If you sell it for more than 1,000,000., anything beyond that 500,000 would be taxed. Accountants, is this correct?

 

Thats what I figured.

The only way I would consider this deal is if you can rent out part of the house (is it a duplex?) and use the rent money to pay your mortgage.

It is obviously not the place you want to permanently reside (long, long term) and at best, you will break even.
Ask yourself...whats the point?

Just save money, so you can have a better downpayment when you are ready for a permanent house.

 

I'd agree with Detroit, the big thing to take into consideration is two sets of transaction costs. You did not say the price range but if you were to buy it today and say have about $4000 in closing costs and turn around and sell it tomorrow at the $10000 more you say it is worth, you will have a couple grand in selling costs. Then add that you will most likely need to pay at least one realtor when you sell it, if not two, and you could easily end up in the negative.

If you were confident of a longer than two year horizon and were pretty sure the market would continue to appreciate in your area I would give you a different answer, but I would just get the transfer you want ASAP and then pounce on a house there.

 

Unless you are pretty sure your area is zooming up in value, i would say this is pretty risky. as said above, you do have closing costs when you buy and would most likely need a realtor (5%-7%) to help you sell, plus additional closing costs selling as well......

On the other hand...maybe this house needs a little bit of work? if so, you can probably get some nice appreciation from just doing a good job of painting and making it look much nicer....

you left out too many details..... I won't buy a house unless I know I can make $15k but the houses I buy are only $50k or so..... You are most likely talking about a much more expensive house.

goodluck.

 

Yessir, you've got it.

 

Here's a little more info, without getting into too many specifics:

The asking price for the house is $139K, and for taxing purposes, it is appraised at $132K. The fact that the asking price is relatively close to its appraised tax value, at least in my eyes, is an indicator the seller is asking a reasonable price. It is not uncommon in this area that houses sell for quite a bit more than their appraised tax value.

It is my belief that this house will not appreciate substantially in the next five years or so, and here's why. This is an economically depressed area, and the best paid residents are, without a doubt, federal employees. Well paid, yes, but certainly not what I would call wealthy. I really can't see these types of people paying more than about $150K for houses in this area. There is a shortage of good housing here because there are no new neighborhoods and subdivisions being built, and this area will only see an increase in the number of federal employees transferring in. I would certainly think that, in the next few years, if I were to sell the house for a reasonable price, I wouldn't have a problem finding a buyer.

This city is by far the nicest and most desirable within a 70 mile radius, and the neighborhood in which the house is located is probably the nicest one this city has to offer. The neighborhood has very few, if any, rentals in it and the type of people who live in it are all professionals. It's a nice house, even nicer than many of the other houses in the neighborhood. It needs no work at all - just move in and enjoy.

But here are the nagging things that keep me from pulling the trigger and going for it. First, I truly dislike this area and have no desire to permanently stay here. I am constantly applying for other positions so I can transfer out. Second, property taxes here in Texas are a real problem. I will be paying almost $3.5K a year in property taxes. Ugh. This is the only thing that I would imagine a future potential buyer would really dislike, especially when a significant tax savings can be had by moving outside of the city limits. Third, if I buy, I am going to feel more committed and locked into staying here, versus renting and feeling like I can just up and leave at a moment's notice when a job offer comes through.

And here's the financial aspect. Suppose that I buy and sell the house within a period of two years. Just how much does it really cost in fees and such to buy and sell a $139K home? Property taxes will be about $7K for two years. Is it unreasonable to think that paying two years of property taxes and buying/selling fees that this could amount to $20K? I don't see the house appreciating this much in two years, and it is more than the $16K I will have payed here for rent in that time period.

So that's the situation. Right now, from my vantage point, it seems like this would be a really good house to buy if I weren't pursuing a transfer.

But then again, I've never bought a house before and am maybe missing something...

 

You may be paying property taxes in Texas but that is in lieu of a state income tax.

You are paying your landlord's property taxes right now in your rent so you can't really add the tax costs to your estimate, you aren't getting away from them no matter whether you are renting or buying.

Tax assessment has no real world relationship to value. Since the individual sales prices are not recorded in Texas and since the taxing authorities can only use the MLS and other services to determine the overall area sales rates the Assesed Tax figure could be tens of thousands of dollars off. Typically they are not, but that depends upon historical tax increases/decreases.

You would love to have the Assessed value be lower than real world BUT THE ONLY WAY YOU WILL KNOW IS TO TALK TO AN APPRAISER!

You answered your own question. The area is depressed and you don't like it. Don't buy the house! It doesn't matter costs or taxes or anything else.

 

Okay, here is the deal. All assumptions are based on the seller using a Realtor to list the home and the Realtor is charging a 6% commission to sell the home. If there is no Realtor, my assumptions are shot to hell and pretty useless. So, based on my assumptions, the home is only worth $132k. This is what the seller needs to walk away with after the transaction, so to clear that amount, and still pay the Realtor, the home is listed at $139k. ($132 x 1.06% = $139k) So you aren't buying the home with any equity, you just paid higher than the home is worth in order for the seller to net their bottom line of $132k. This is why whenever someone says that the seller pays the Realtor fee is it complete BS. The seller artificially increases their sales price to still net the amount they need. So, if my assumptions hold true, you aren't buying with any built-in equity. You will still be paying closing costs on the purchase, say $4k for conversations sake. Now you are in for $143k on a home truly worth $132k. When you sell the home in 2 years, and don't use a Realtor, you will need to list it at least $147k just to cover your next $4k in closing costs to sell the home. So with no Realtor, you need the home to appreciate $15k in 24 months to break even. If you use a Realtor in 2 years, add 6% to the sales price to cover their commission, and you are looking at having to list the home at $156k to net out the $147 you need for the entire transaction to be a wash ($139k purchase price + $4k in closing costs to buy + $4k in closing costs to sell). Now, this may be a doomsday scenario, but it gives you a brief idea of what kind of costs you are in for, and what kind of sales price you need to break even in 2 years, let alone profit any money. I am sure I am about to get flamed, so I am zipping up my flame suit and preparing for battle.

Just my thoughts.

 

Dude you dont have any equity. On the contrary you are paying above appraised value. Dont ever do that!!!!! What is the purpose of the appraisal then? If it's like that stay happy paying rent it will be much cheaper in the end. Another thing any difference in between appraised value and sales price is picked up by you!!!!!