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I like the WCI advice on limiting one's mortgage to X (2)( annual income).
(2)( $50k) =$100k mortgage + $300k =$400k total home purchase price.
(2)( $50k) =$100k mortgage + $300k =$400k total home purchase price.
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Wow, why not find a “deal” that needs a lot of TLC? That’s a great hobby to have...
If you are dead set on using the $300k from your sold home to fund your future home, why not buy a home that has serious fixer-upper potential?
You know what they say about great minds, Gas_Doc...Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087Comment
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Wow, why not find a “deal” that needs a lot of TLC? That’s a great hobby to have…
If you are dead set on using the $300k from your sold home to fund your future home, why not buy a home that has serious fixer-upper potential?
You know what they say about great minds, Gas_Doc…
I dont know, we did this, and we do certainly enjoy fixing stuff up and growing up building things with my carpenter/jack of all father (and having him around to help at times), and working for several years doing maintenance at a 88 unit apartment complex certainly gave me skills to do things...I find I enjoy the time spent less and less and would rather do other things. I do really enjoy landscape, plants, a little garden, but man does home stuff take time and some weekends Im doing nothing else. Its not unenjoyable, I just like other things as well. Idk, its tough as it certainly is a good deal.
Our current house is about as nice as we should let it be in this neighborhood, had to warn the wife we entered diminishing return zone on it recently. Maybe time to move on.Comment
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> Capital gains will only be above what you paid for it, ie the appreciation,
Unless I’m radically misunderstanding, I believe there is an exemption on the first 500k of capital gains for a married couple selling a primary residence.
Why dont we do this to illustrate what Im saying which is coming off more nuanced in text than planned. What did you pay for the house (down payment and all payments total), and how much do you think you could easily sell it for?Comment
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Why dont we do this to illustrate what Im saying which is coming off more nuanced in text than planned. What did you pay for the house (down payment and all payments total), and how much do you think you could easily sell it for?
I'm not sure I understand the question.
Our present house was bought for $190k. All payments and interest totaled $250k (until we paid the loan off). Talking with real estate agents and discussing comps, we think we could easily sell for between $275k-300k. We did significant work on the house, but total renovation costs were <$50k.Comment
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Why dont we do this to illustrate what Im saying which is coming off more nuanced in text than planned. What did you pay for the house (down payment and all payments total), and how much do you think you could easily sell it for?
I’m not sure I understand the question.
Our present house was bought for $190k. All payments and interest totaled $250k (until we paid the loan off). Talking with real estate agents and discussing comps, we think we could easily sell for between $275k-300k. We did significant work on the house, but total renovation costs were <$50k.
Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this.
All payments and interest- 250k
Sell at high end of comps- 300k
Capital improvements- 30k
So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523) but it still wont be close to 300k. Sale for anything less than 290 and you will undoubtedly come out behind. Money almost certainly would have been put to better use in the market instead over the same time period.
Does that make sense?Comment
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I understand how capital gains are calculated. I agree that, in general, markets are expected to return more than the 3-4% I was paying in mortgage interest, so it would have been better to invest the money in equities, rather than paying down the mortgage early (is that correct)?
If so, I know. A lesson for next time.Comment
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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the "basis" is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing - it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I'm having some difficulty understanding your "nuanced" point.
Possible you may be inadvertently substituting the term "capital gain" for "cash flow"? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087Comment
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I agree that, in general, markets are expected to return more than the 3-4% I was paying in mortgage interest, so it would have been better to invest the money in equities, rather than paying down the mortgage early (is that correct)?
If so, I know. A lesson for next time.
It's true that your "expected" return in the total market is more than 3-4%. Perhaps you expect a 6% annualized return (4% real) in the market. But that is absolutely not a guaranteed return like a mortgage pay-down is, especially over a short time period. Because you take more risk in the market, you should expect more return. I wouldn't necessarily say that it "would have been better" to invest the money in equities rather than pay down your mortgage. You can't put a dollar-value on piece of mind for debt-averse persons like you and your SO.
It's true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.Comment
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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.Comment
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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.Comment
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It’s true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.
I agree absolutely. Short-term returns are nothing but luck and no reason for @awesomesauce to be beating himself up about it.Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087Comment
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It’s true that over the time period you paid off your first home (5 years?), that money put into equities could have been up 59% (9.5% annualized) like it was the last 5 years, but it also could just have easily been down 21% (-4.6% annualized) like it was from 2004-2009.
I agree absolutely. Short-term returns are nothing but luck and no reason for @awesomesauce to be beating himself up about it.Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087Comment
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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Not posting for some reason...Comment
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Close enough. All I am saying is that your capital gains are not what you sell it for. A capital gain is a gain on/above the capital you put into it. A simplified way to show that in your specific case would be this. All payments and interest- 250k Sell at high end of comps- 300k Capital improvements- 30k So looking at just your payments and capital improvements of 280k and sale price of 300k, not counting insurance, taxes, and transaction fees (some are excludabele or adjusted for IRS purposes, but not what Im doing here really) your capital gain is only 20k. Everything else is a return of capital you put in, aka, savings. The IRS version may be a little better (adjusted basis, etc..pub 523)
Actually, the “basis” is the cost of $190k + improvements $50k (rounding up) for a total of $240k. Interest has no bearing – it was deducted on schedule A when paid (if itemizing). If awesomesauce sells for $300k, the LTCG will be $60k less commissions, fixing up expenses, and closing costs. All of which is nontaxable, anyway, so I’m having some difficulty understanding your “nuanced” point.
Possible you may be inadvertently substituting the term “capital gain” for “cash flow”? That would make sense to me. If that is the case, then you will have to make an allowance for the benefit of living in said house rather than paying rent over the period of ownership.
Nuanced in that he did not seem to understand what I said about return of capital vs. capital gains, and was simply clarifying. I think we all can agree that money you put into a house for payments that comes back to you upon sale is not a capital gain, just like putting money into a savings account and then taking it out (minus interest earned) isnt a capital gain. He used the phrase "the 300k we will make", so I wanted to discern whether or not it was a true ltcg of 300k or a combo of ltcg and returned principal, which it seems the majority will be. You dont "make" anything when just getting your principal back. That could have been in savings, cds, stocks, bonds, etc...it just happened to be in the house for this case. It wont make a difference in their gain on the sale math wise.
I agree with your calculations, I just was presenting the illustrative scenario, and included a disclaimer that its likely a bit higher in the way the IRS calculates it given the factors you mentioned. It was truly to make the point of getting your money back vs. a real capital gain. Per the numbers, not a lot was "made" in reality. Its good to put these numbers down sometimes so you dont look at the 300k and say, "whoa! im a stellar RE investor" and then make less than informed decisions going forward.
Not posting 4 some reason...Comment
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