Recouping Your Investment on Your Home.
I was recently approached by several home owners who bought at the height of the market and are now ready to move on to another home. Given that prices have since declined in some areas, they are facing the difficult question of whether to sell at a loss or to lease out and wait for better times. Since the same questions kept coming up, I wanted to share with all of you several key points to consider when faced with this question:
1) Put Your Home on the Market for Sale OR Rent - Not Both: I think it is a bad idea to put a property on the market for both sale and lease simultaneously in order to see which comes first. It sends a message of desperation to potential buyers or renters and would very likely encourage lower offers on either the sale or the rental. I recommend considering both options carefully, making a decision and focusing one's attention exclusively on either selling or renting.
2) Consider the Big Picture - Buying Now at a Discount May Offset a Loss: Unfortunately, if you bought at the height of the market and wish to sell now you will most likely not recoup your investment. However, you may want to consider the larger picture i.e. what happens after the sale has taken place. If you are planning to purchase a more expensive property, or move into another part of the country where prices declined further than your current neighborhood's prices, you are likely to offset possible losses on your sale with a hefty gain as a result of buying at a larger discount than what you sold.
3) Are Prices Going Up in the Forseeable Future? If you decide to wait, you are probably betting that prices will be higher next year or maybe 3 or 5 years from now. But nobody can predict with certainly how the market will perform in the future, and there are numerous signs of an L-shaped recovery and of prices remaining flat for a while. Rising interest rates, tightening lending standards and the expiration of government incentives may put further pressure on price appreciation for the foreseeable future.
4) Ask Yourself: Are You Ready to be a Landlord? If you decide to wait, you are most likely looking to rent out your place, but would the monthly rent cover your expenses including mortgage, maintenance and taxes? If you bought at the height of the market with anything less than 50% equity, the rental income is not likely to cover your apartment carrying costs, not to mention possible vacancies or any larger maintenance issues that may occur. At the end of the lease, there will probably be some rental wear and tear which may require additional investment in renovation or a price reduction which may further offset your future profits. So you are looking at subsidizing your tenants for a while hoping for larger future profits, but at any case, are you prepared to be a landlord?
5) Finally, Consider Your Tax Implications: Selling a primary residence entitles you to exclude up to $250,000 profit ($500,000 for married people filing jointly) from capital gains tax. However, leasing up your unit turns it into an investment property and therefore subject to capital gains taxes. You should check with your accountant about that, but capital gains tax rates are most likely to rise in the near future and very often, the tax savings on a primary residence sale will offset the tax liability on an investment sale despite the lower price.
If you found this information useful, please pass it along to your friends. If you or someone you know is looking to buy, sell, rent or invest kindly forward me their information so I can follow up with a complimentary market analysis and consultation.
Speaking Engagement: Thursday February 18, 2010
This Thursday, February 18, I will be speaking in a forum entitled: "The 2010 CEO Summit - The Future of New York Residential Real Estate" alongside other noted NYC real estate experts including:
Dorothy Herman - President, Prudential Douglas Elliman
Hall F. Willkie - President, Brown Harris Stevens
Shaun Osher - CEO, Core NYC
Diane M. Ramirez - President, Halstead Property
Frederick Peters - President, Warburg Realty
More information is below- seating is limited so please RSVP to appelevansgroup@gmail.com as soon as possible!
What: "The 2010 CEO Summit - The Future of New York Residential Real Estate"
When: February 18, 2010 from 5:300in (Registration at 5pm)
Where: The Auditorium in the Bank of America Tower at One Bryant Park
1111 Avenue of the Americas, 2nd Floor
Best Wishes,
