New Construction

[MissCrabette]

I'm with Kozmo and Tara. If the new construction is in a cookie cutter neighborhood, with the neighbors a few feet from you, you're not going to have an easy time selling. Add to that the fact that newly built developments are not well established neighborhoods and many of the home owners end up moving fairly soon. You'd be competing with several identical houses when it comes time to sell.

Even if you end up staying for three years in your current location and if you have no trouble buying and then selling, you'd pay a ton in closing costs when you buy and in realtor commission when you sell. Depending on the market at the time, you could end up having to PAY TO SELL. I understand that you want to grow roots and get a sense of normalcy, but look at it this way. You'll probably want a nicer house when you're done with training anyway. I know I would.

Two years? Do not buy. The market is tanking, two even three years is not enough time to reliably break even in a good market, and if only your husband is working I don't think your mortage tax deduction savings will amount to much at all. I hear you about putting down roots but just tell yourself, do I want to sow the roots of my future in financial insolvency!!

The only way I can see you buying is if you felt confident that you could cost-effectively rent the ohio house in case it doesn't sell (and would want to do so even if you moved away.) Usually houses are hard to rent without losing at least a little money on them each month.

[DCJenn]

But, if you plan to lose a little each month, you avoid the tax penalty of a profit.

Jenn

But, if you plan to lose a little each month, you avoid the tax penalty of a profit.

Jenn

WOW really?? Great! We are renting out our place in N. Cal so this is good news for us!

Unless I am missing something, losing the tax on a profit, means you are also losing the profit! This is not a good thing. Ideally, you want to at least break even. If your income is under 100k or some such you can write off losses, making them not sting quite so badly. But they still sting!

We are going through the same thought process right now: rent vs. buy and if so new construction vs. old. Right now, I think it makes most sense financially to continue renting (we have never owned) because we don't know if we can afford to buy in this city. However, renting has its own headaches. Right now we're renting someone's condo, and opposed to the more hassle-free renting we've done in large apartment complexes, we've had a lot of hassles here.

I agree that it seems like new construction can have many problems just like old construction. I guess if I had the choice I'd prefer new construction, but we're still learning about home buying by going to open houses and researching on the web.

Unless I am missing something, losing the tax on a profit, means you are also losing the profit!

I am curious to know more about the laws regarding this because whether or not we are making a profit or incurring a loss depends on several factors.
The amount of rent we are collecting is $50/mo more than our monthly mortgage. However, we pay a property company monthly to manage our home and the collect rent plus we pay the gardening fees. When you calculate this in we are losing $140 a month. Plus, our property taxes are about $4K a year. How do these taxes calculate into the whole thing or do they?


Getting back to the original question about renting vs buying: Kelly if I were you, I would buy for two years and IF it's not desirable to sell when you are finished (halleluyah!) I think you could rent the place out. A drop in prices is the PERFECT time to buy! After spending 2 years in my OWN home, I despise living under someone else's rules and dealing with a slumlord that doesn't fix anything. I'd rather sacrifice by living cheaping and owning then renting ever again.

Kozmo, I am not an expert on this but as I understand it your property management fees, your property taxes, any repairs, cost of travel to your rental, any legal or accounting expenses, any maintenance items ALL count as expenses and offset your profit (i.e., your rental income). To avoid any surprises, I would write out a list of each and every expense you can think of, including unanticipated leaks, breaks, repairs plus all the expenses listed above. I think seasoned landlords also try to estimate their rental income flow at 75% of a year's rent to account for vacancies, tenants leaving unexpectedly, etc.

Based on what you are describing to me, it sounds like you are losing more than $140 per month, no? Now, you can also depreciate rental property (lessens the sting of your losses - - though I *think* you need to repay some of the depreciation when you sell) and I believe there is tax deductibility of the losses, but the extent of that deductibility depends on your income and favors lower-income landlords.

If you rent your place long-term be aware that you need to have lived in your place I believe its 2 of the 5 previous years in order to avoid paying capital gains tax - - you really want to avoid this, it will wipe out any savings from renting.

Bottom-line: why don't you try running the numbers with an accountant. The loss/depreciation stuff is so loopy that its hard to estimate but spending a few hundred (deductible rental expense) dollars upfront will reduce suprises for you . . .

[samssugarmomma]

One of our friends here bought new out in the growing area of San Antonio and had a VERY difficult time selling it for that reason- people could buy brand new three streets over. She ended up taking a loss just to get rid of it.

This totally happened to us in Houston. Except the new houses were cheaper than what we paid for ours. So, we had to undercut the cheaper, new houses. I can't even type how much we lost when we sold our place. But, let's just say- I had to empty my 401k.

[DCJenn]

If you rent your place long-term be aware that you need to have lived in your place I believe its 2 of the 5 previous years in order to avoid paying capital gains tax

Unless you're active duty military and have been PCSed (Permanent Change of Station). They recently changed the tax laws to reflect the reality of the military family- we move a LOT!

Jenn

ETA and you only have to pay capital gains if your profit is more than 500k I believe.