DEL.ICIO.US2 payments: No problem
Two transplants share how they bought homes here even though their old homes hadn’t sold.
For the AJC
Sunday, August 31, 2008
In today’s difficult real estate market, many sellers are looking for alternatives to dumping their existing home on a low-ball offer, especially if they’ve already found another home they need or want to go ahead and buy.
Photos by Christopher Oquendo / Special
A great deal at Brownstones at Honour in Atlanta convinced Amy Symms to buy here and find a way to lease out her Connecticut condo until the market improves.
The Brownstones townhome felt right to Symms. ‘I like these townhomes because they’re new construction similar to what I had in Connecticut, in a great location about four miles from my office.’
A new home in the Virginia-Highland area has ‘a feel of history,’ says Katherine Green, who wanted something within a reasonable distance of downtown because she’s ‘a terrible commuter.’
Amy Symms was ready to give up apartment living when she found this townhome in Atlanta marked down in an inventory reduction. To buy it, however, she had to figure out the tricky business of taking on two mortgages.
Renting out the previous home has proved to be a reasonable solution for some of these sellers, and it’s a good one if you are careful about how you do it. Read these stories of two Atlantans who have done it and the expert advice they heeded to make sure they did it right.
A home in Connecticut that’s been slow to sell
Amy Symms had just finished creating her dream place in Connecticut. She bought a two-bedroom plus loft condo and gutted it, fashioning a high-end haven in an exclusive area.
Then along came a job offer she couldn’t refuse, vice president in operations for Equifax in Atlanta, and last March her condo went on the market. “I was hoping to break even after all the renovations, but it didn’t sell.” She dropped the price, but still no buyers.
Finding a great place in Atlanta: In the meantime, she had moved into temporary housing and started looking for a new home. She found a unit in the Buckhead’s Brownstones at Honour that seemed right.
“I like these townhomes because they’re new construction similar to what I had in Connecticut, in a great location about four miles from my office.”
Her Realtor, Diana Sauvigné of Prudential Georgia Realty says, “Amy was able to negotiate an extremely attractive purchase price during the builder’s inventory reduction sale.”
What to do about the home in Connecticut? Now she’s found a place she’ll enjoy and she can get it at a great price, but the condo in Connecticut still hasn’t sold. Symms decided it was time to think about renting her former home. “I’m done with living in my temporary apartment with my personal belongings still in Connecticut. My plan is to move my things to Atlanta in September and have my condo rented out starting Oct. 1.”
Rent for 12 months? Since Symms is working with a relocation package from her new employer, her Prudential real estate agent in Connecticut will handle finding her a tenant. “I hope to rent the house for 12 months and then put it back on the market during the spring of 2009. I’ll have that written into the lease, that I can start showing it again for the last four months.”
Wanting to make financial sense: “Working out the financing for something like this is tricky. It might be possible for me to get a mortgage for a home in Atlanta even though I’m still carrying a mortgage in Connecticut, but I really need to be sure I’m comfortable with the reality of what two payments means. With my professional background, I understand the realities of consumer debt. I’ve been here for five months, and I want to be in Atlanta, but I don’t want to take on two mortgages without a commitment to offset the cost of my mortgage in Connecticut.”
Her Realtor’s perspective
“There are so many people right now who are anxious to take advantage of this fabulous buyer’s market, but they’re reluctant to sign on the dotted line since they still have their original residences for sale and no offers on the table,” says Sauvigné of Prudential Georgia Realty.
“Because the rental market is excellent now, I’ve suggested to Amy and several other clients in this same position that they consider renting their original residence. Usually they’re able to cover their mortgage, and they get the advantage of the tax deduction of the interest payments on their original home, as well as the interest payments on a home they buy in Atlanta. Financially, they are coming out better than if they rented in Atlanta and waited for their original home to sell,” she says. “Of course, I always advise that my clients check with their accountant or financial planner to verify that the tax incentive would work well for them.”
While you’re renting
During the time the residence is a rental property, the owner can deduct reasonable and necessary expenses associated with that. This includes but is not limited to property taxes, insurance, maintenance, management fee, advertising, cleaning and landscape maintenance. The owner gets the positive value of rental income and the “write-offs” from rental property expenses plus a depreciation deduction. For about every $100,000 of value, the depreciation deduction will approach $3,000. That’s a rough approximation.
When you’re ready to sell
Section 121 – the two-out-of-five-rule — states that if you have owned and lived in your home for two out of the last five years before the sale, each owner can exclude from their income tax up to $250,000 of the profit from the sale.
If you’ve only lived in your home for one of the five years before the sale, then a pro-rata exclusion may apply; otherwise, income on the sale is treated as capital gain and the sellers will pay capital gains tax, which is currently 15 percent at the federal level and an additional 6 percent for the state of Georgia.
Section 1031: If the original residence has in essence become exclusively a rental property, then the capital gain can be deferred through a “1031 exchange.” The principle is that any real estate held for investment can be exchanged for any other real estate to be held for investment, This allows the owner to defer taxes by buying a replacement like-kind property of equal or greater value, as long as she identifies that property within 45 days of the sale and closes on it within 180 days.
“When considering the sale of your residence, several tax analyses may be applicable. Always consult your tax adviser for your best strategy,” says CPA John Mangham.
A two-year lease agreement means owner can relax
“I had been with Fox Television for about 10 years in Washington, D. C. and was hired away by CNN to serve as a senior vice president,” says Katherine Green. “When I took the job, I knew that the Washington market was a bit soft. The house went on the market in late February and was seen by dozens of people. There was a lot of interest, but we weren’t getting offers.”
Wearying of a commute that involved working in Atlanta during the week and flying back to Washington on the weekends, Green began exploring the alternatives. “Could I carry the house in D.C. and purchase a house here at the same time?”
Her home in D.C.
Green’s four-bedroom, 3½-bath home is roughly 4,000 square feet and was listed at $1.1 million. “After discussing it with my Realtor, we decided to leave it up for sale but offer it for lease as well. The house is in a very desirable ZIP code and a lot of embassies in Washington lease homes in the area. Literally the first person to walk in the door once we made that decision was the employee of an embassy, and I now have a two-year lease with them. Of course, I received three sales offers at the same time, but each offer had its own issues. I decided I’d rather have the two-year lease than to sell now and sell at a loss.”
Her new home in Atlanta
Green was also on a relocation package working with Prudential’s Sauvigné. “I discovered that in Atlanta, you can pretty much find any style of living within a somewhat reasonable commute of where I work downtown. I’m a terrible commuter, so I wanted to be as close as possible. I like grass, and a yard will sell me every time. I was charmed by the Virginia-Highland/Morningside area where the neighborhoods feel like neighborhoods. The school district was also important to me for resale. The house I bought is new, but it has a feel of history to it. I feel that I’m getting a lot of contemporary modern features built into a house with charm and history. And a big backyard.”
A great neighborhood
The weekend she moved in her neighbors brought her pastries and flowers. “Atlanta is one of the friendliest places I’ve ever lived, and this will be my seventh city in about 22 years. I feel I’m an expert.”
Find your dream home on ajchomefinder.