Yorba Linda Vista Verde or Wait???

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stone007_IHB

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We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



Are we crazy to consider a move to a Yorba Linda (Vista Verde community) at this point? We can get a 3200 foreclosure for about $780k OR pick up a brand new house for about $850k for about 3400 square feet..We can afford the mortgage with a 30 year interest rate so that's not a problem..Not completely certain we would qualify for the loan though as I am hearing rumors that lenders are requiring at least 25% down payment.. Should we jump on moving or wait??? That's the million dollar question..And if we do wait, wait for what?? Prices to fall another 10%?? More??
 
[quote author="stone007" date=1227100372]We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



</blockquote>


What? tax-write off??It depends on your income. If you make more than a certain income you can't write off anything.

PS: I need coffee!
 
[quote author="WestparkRenter" date=1227141334][quote author="stone007" date=1227100372]We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



</blockquote>


What? tax-write off??It depends on your income. If you make more than a certain income you can't write off anything.

PS: I need coffee!</blockquote>


Exactly... once your AGI is over I believe $120,000 then the rental loss starts to phase out and I believe is completely eliminated at ~$140K. Rental property requires a schedule E, so you no longer will itemize the interest on your schedule A. Considering that you can afford an $850K house, your income must be higher than the total phase out.
 
What these guys said!!! First off, let me state that starting off at a deficite is never a good idea. Rents will not go up for quite a while.... You can try your luck, but i'm guessing that if you don't keep it low you'll lose a renter and you'll be out a MONTH's or many months worth of rent.



Plus alot of people don't realize that houses need upkeep and you're the bagholder..... Any little issue might DESTROY your investment, so you need to add a few things which will make your -400 rent even more painful.



- rental insurance

- libality insurance

- repair fund to replace/repair/fix anything that is broken

- upkeep maintence



It usually adds a negtative 5-10% of the rental price. So if its 2000, then its 100-200 a month just to add to the fund (Just in case). Believe me.... having some idiot burn down YOUR house and then SUE you can ruin your day.



Good luck

-bix
 
You may also want to consider a property manager. I know a lot of landlords say they aren't worth it, but I can attest that a good one is very valuable. We pay 9% of the rent to ours. They advised on what to charge for rent, found a tenant within days with very strict qualifications on credit, employment, rental history and income. Three days after the tenant moved in the sewage line backed up. We were in Buenos Aires and my phone was roaming and not always catching calls or showing there was a v/m. Two days after that we were in Uruguay with reception and I have v/m's from the property manager.



They had their guy take care of the backed up line, but upon inspection there were multiple cracks and it really should be replaced. One call back to them and they took care of getting the line replaced. So even if you have an "in case of emergeny call person," how the heck are you going to arrange to replace a sewer line while you're in Uruguay? Murphy's law and all, something will happen at the worst time.



The liability insurance isn't that much, but it is a definite must. We also have our tenant take out a liability policy.
 
[quote author="stepping_up" date=1227152805]You may also want to consider a property manager. I know a lot of landlords say they aren't worth it, but I can attest that a good one is very valuable. We pay 9% of the rent to ours. They advised on what to charge for rent, found a tenant within days with very strict qualifications on credit, employment, rental history and income. Three days after the tenant moved in the sewage line backed up. We were in Buenos Aires and my phone was roaming and not always catching calls or showing there was a v/m. Two days after that we were in Uruguay with reception and I have v/m's from the property manager.



They had their guy take care of the backed up line, but upon inspection there were multiple cracks and it really should be replaced. One call back to them and they took care of getting the line replaced. So even if you have an "in case of emergeny call person," how the heck are you going to arrange to replace a sewer line while you're in Uruguay? Murphy's law and all, something will happen at the worst time.



The liability insurance isn't that much, but it is a definite must. We also have our tenant take out a liability policy.</blockquote>


I pay 6% for rental agent. Not only that I only rent out to executive with high FICO scores. I've made a mistake to rent out to some low income people and vow to never do that again.
 
QFT on the agents and low income renters.... Never again. But I just let the agnecy take care of it now. Unfotunately they make ALOT of money.



-bix
 
I think the % is higher where our rental is because the rents are less. The lowest we saw up there was 7%, but after interviewing the short list, the one at 9% really made us feel like the place was going to be in the best hands. The extra 2% on rent that is 40% less than OC, didn't add up to be that much. And yes, I would prefer to have $200 less per month in our pocket in exchange for a great tenant. When you have a mortgage on a place, every day that it is empty costs you out of your pocket and if you don't get your rent, it can be pretty painful. Not to mention how expensive it is to have anything fixed. You're stepping over dollars to pick up pennies if you try to maximize your rent with lower quality tenants.
 
What the others said is correct. You are not going to be able write off the $400. I'm assuming your MAGI is over 150k since you can afford a second home for 700-850k. If this is true you can only net your rental losses against other passive income (i.e. another rental)
 
Yes, our combined income is significantly higher than 150k thus what I hear this group saying is that there is not a tax benefit to keeping our home as a rental property. Correct?



What about my question about buying our move-up house..Is there anything gained by buying now versus sitting, waiting and holding to see if the market continues to fall?



Thanks for all the advice..I have learned so much reading this forum.
 
[quote author="stone007" date=1227196183]Is there anything gained by buying now versus sitting, waiting and holding to see if the market continues to fall?</blockquote>


Only if you believe prices have bottomed. Houses are an asset just like stocks. The question you are asking is the same question many investors who are sitting in cash are asking about the stock market. If you believe we are at the bottom, you should buy. If you believe prices will drop further, you should wait. Since the cost of ownership is still higher than market rents, there is no financial benefit to ownership, and it also points to a continued decline in prices.
 
[quote author="WestparkRenter" date=1227141334][quote author="stone007" date=1227100372]We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



</blockquote>


What? tax-write off??It depends on your income. If you make more than a certain income you can't write off anything.

PS: I need coffee!</blockquote>


Yes, this income cap is what kept us from purchasing a rental property. I thought we would be able to write off the interest, costs, etc., but no. We were preapproved for a loan a few months ago but a call to our CPA put an end to that idea. There were no tax benefits to be had. In hindsight, I'm glad it didn't work out as the property has come down in value.
 
Yes, I work VERY hard to get us below the MAGI limit and still skirt the maximum amount of deductions. Anyways we will see.



I'd talk to your tax person to see if it can work out for you. But really are you ready to afford two homes if need be?



-bix
 
[quote author="SoOCOwner" date=1227227129][quote author="WestparkRenter" date=1227141334][quote author="stone007" date=1227100372]We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



</blockquote>


What? tax-write off??It depends on your income. If you make more than a certain income you can't write off anything.

PS: I need coffee!</blockquote>


Yes, this income cap is what kept us from purchasing a rental property. I thought we would be able to write off the interest, costs, etc., but no. We were preapproved for a loan a few months ago but a call to our CPA put an end to that idea. There were no tax benefits to be had. In hindsight, I'm glad it didn't work out as the property has come down in value.</blockquote>


Plus the new law that was passed this year will make owing a second home not so great. You have to recapture divide the $500K capital gain to the years of renting starting in 2009.
 
[quote author="WestparkRenter" date=1227253163][quote author="SoOCOwner" date=1227227129][quote author="WestparkRenter" date=1227141334][quote author="stone007" date=1227100372]We have equity in our house and ideally would like to rent it out, at a loss of about $400/month..We are not overly concerned about the loss as we can comfortably afford it plus we can use the tax write-off.



</blockquote>


What? tax-write off??It depends on your income. If you make more than a certain income you can't write off anything.

PS: I need coffee!</blockquote>


Yes, this income cap is what kept us from purchasing a rental property. I thought we would be able to write off the interest, costs, etc., but no. We were preapproved for a loan a few months ago but a call to our CPA put an end to that idea. There were no tax benefits to be had. In hindsight, I'm glad it didn't work out as the property has come down in value.</blockquote>


Plus the new law that was passed this year will make owing a second home not so great. You have to recapture divide the $500K capital gain to the years of renting starting in 2009.</blockquote>


that's only if they planned to do the old go live in it for two of the 5 past years of owning, which WAS my plan for the Paso house. So, now you just sell and pay the tax on the recpatured depreciation and capital gains, hold it indefinitely, or do a 1031 exchange.
 
So do sell in this market? We paid $490k..We owe $400k and recent comps are selling at $540k..We really need to move further north (North OC) to be closer to work and desire for a bigger home as we have a growing family..Our combined income is $250k+..We keep weighing the pros and cons of 1) Moving now 2) Renting out our current residence and/or 3) Selling our current residence.



We were pre approved for loan on the Yorba Linda home so I am not concerned about qualifying...Just iffy on selling now and then equally iffy renting at a loss and the hassle that might be associated with it.



I appreciate the input..I didn't realize the AGI limit of $150k..Thank you for the insi
 
sell now. you can rent a 4000 sf house for $1/sf. you can't touch that for a purchase, even after the recent drops.



renting out instead of selling only makes sense if it is cash flow positive (and you've already said it isn't), or you expect appreciation (no way no how for 5 years plus).



plus, you can live for a year or two in the neighborhood that you think you want to buy in, just to make sure it fits your needs.
 
[quote author="stone007" date=1227273064]So do sell in this market? We paid $490k..We owe $400k and recent comps are selling at $540k..We really need to move further north (North OC) to be closer to work and desire for a bigger home as we have a growing family..Our combined income is $250k+..We keep weighing the pros and cons of 1) Moving now 2) Renting out our current residence and/or 3) Selling our current residence.



We were pre approved for loan on the Yorba Linda home so I am not concerned about qualifying...Just iffy on selling now and then equally iffy renting at a loss and the hassle that might be associated with it.



I appreciate the input..I didn't realize the AGI limit of $150k..Thank you for the insi</blockquote>
I would sell. You have some equity and buy the bigger house.
 
Thank you for the advice..



We went to look at the home again this weekend and surprisingly, there were 6 other couples looking at the home while we were there. It amazes me that we read what we do in the papers about lack of buyers, yet people swarm around foreclosures.



We are going to make an offer at $672k (what the bank took the home back at) with a 30 day escrow..If the bank needs to sell the home, we'll take the home off of their hands for $120k less than asking AND $175k less than the recent sold comps in the area..If they aren't interested, then we'll walk away..No loss as we know there will be other foreclosures coming up on the market.
 
Just want to clear something up. Although not all losses on rental real estate may be able to be deducted in the year incurred because of phase out due to income thresholds, the losses are not lost. The losses are deferred until such time that the income thresholds are no longer reached or the property is sold.
 
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