|
|
|
Real Estate InvestingBy Roger Sorensen
Are you one of those fortunate people who purchased a second home, perhaps a vacation home a few years ago in what turned out to be a hot real estate area? Even if you didn’t buy in California or Florida, the twin hubs of housing exuberance, your second house has probably appreciated nicely over the last three years. Now that the news is full of talking heads talking about a cooling market, you are wondering if you should sell.
The answer depends on you. Do you use that vacation home for vacations? Is it in a location you would like to retire to some day? If you answered yes, you probably won’t want to sell.
If you bought the house because you wanted rental income, or had a good tip from a friend, perhaps you should sell. Housing is a cyclical market and what goes up will come down. At this time, the fourth quarter update of the 2005 Global Insight/National City Housing Valuation Analysis notes that affordability is at its lowest point since 1991. This is due to the twin factors of rising interest rates and high home valuations.
So what can you do if you have a second home and you want to sell? You could sell the place for the current market price of $800,000, deduct your $200,000 purchase price and pay nearly $120,000. You’ll still clear $400,000 profit.
You don’t like paying the government that much money? Another strategy is to sell the house you currently live in and use the $250,000 home-sale exclusion ($500,000 for married couples) to shelter gains. This works if you have spent 2 years out of the last 5 in the current home. Then you move into the second house and after two years you can sell it and protect $250,000 ($500,000 for married couples).
There are other ways to set up a sale so as to minimize taxes. A private annuity trust (PAT) works wonderful if you are in an upper tax bracket. Talking with a competent financial counselor will be required in any house sale if you want to minimize your taxes. However, that doesn’t mean you can’t do research on your own and decide what you want to do with the money from the sale.
For now, the prices on the housing market are buoyed by sellers expectations. As a seller, you expect to receive the same price for the house you want to sell as you would have received last year. The longer your house sits on the market, the lower your expectations become and the price is reduced. If the market cools to far before you can sell, hold onto the property if you can until the next upswing in the housing cycle.
If you have already sold your real estate investments, sit on the sidelines until the bottom of the market is reached or the housing prices have reduced to a point where you feel comfortable making another purchase. Keep in mind this next housing cycle might not have prices reaching such high levels as fast as they did this time around.
Whether you are a buyer or a seller, having patience and a strong stomach when you play the real estate game is essential and a virtue.
Copyright Roger Sorensen
Next: Yourself & Investing
|
|
Home
Forums
Newsletter