Author Topic: Don't let me squander a potential windfall- selling rental home  (Read 2246 times)

MyCircus, MyMonkeys

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Everyone's advice has most always been to sell our rental home (prior posts).  Apparently I'm pretty hard-headed- I'm just now getting around to it. I had a realtor out to give me estimated/potential selling prices for our primary home and our rental home, and the realtor said he would list our empty rental for sale at $165k (primary home not such a hot commodity).  This is great news, as that means we turn a profit!  So, two general questions for you MMM financial geniuses:
 
1.  Anyone care to check my (ballpark, estimated) understanding of capital gains tax if given:
       Capital Gains Tax Liability:
       sales price                                165,000.00
       adjusted basis                      (113,400.00)
       capital gains tax liability                   51,600.00

       federal tax, 15% of 51.6k                   (7,740.00)
       state tax, 5% of 51.6k              (2,580.00)
       depreciation taxed at 25% of 51.6k       (7,736.50)
                                                                      (18,057)
      Net:
      Sales price                                165,000
      Mortgage balance                            (100,000)
      Costs/fees/commissions                   (15,000)
                                             55,000
      Less taxes                                (18,057)
      Take Home Profit                               36,943
Obviously, the "take home profit" fluctuates based on selling price.  We honestly think this number is too high, and think our take home might realistically be more like $26,000.

2.  Here's what we are planning to do with this windfall:
      A. pay off credit card balance (if there is one), currently $2600
      B. pay off car note, currently 16,392 (FYI, after car is paid, only other debt is mortgage balance at $250k at 3.75%).
      C. Fund Roth IRA's for both, $11,000 (if take home is less, then Roth's will be funded to balance remaining from sale after A, B paid).
      D. upgrade home insulation, $6000*- I think this should be taxable investments, or maybe saved so I can max my TSP and use this if needed; but we really want to do the insulation.

Ae my numbers realistic? Or any different thoughts on how to use the money?

Drifterrider

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Re: Don't let me squander a potential windfall- selling rental home
« Reply #1 on: May 03, 2016, 07:18:35 AM »
The only thing I can add is not to equate sales price with listing price.  Have your realtor pull comps.  That is the only real measure of property value. 

We were going to sell my late brother's house.  One realtor told us if we upgraded to granite counter tops and stainless appliances she would list for $20k more.  So we told her "so, if we invest $20K you will list for $20K more but that is no guarantee we will get it and that is only break even, right"?  She didn't get it.  We didn't do it.

As to what to do with the money.  I don't like debt.  I max my TSP all the time.  After that (if you have a good emergency stash) vanquish the debt starting with the highest interest rates debt first.

Platypuses

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Re: Don't let me squander a potential windfall- selling rental home
« Reply #2 on: May 03, 2016, 07:44:15 AM »
  Net:
      Sales price                                165,000
      Mortgage balance                            (100,000)
      Costs/fees/commissions                   (15,000)
                                             55,000 50,000
      Less taxes                                (18,057)
      Take Home Profit                               31,943

neo von retorch

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Re: Don't let me squander a potential windfall- selling rental home
« Reply #3 on: May 03, 2016, 08:12:42 AM »
Can I sidetrack you with a question?

What does your place rent for? I probably should sell my rental, and your thread really caught my eye when I saw the $165k figure, as that's almost exactly what my rental would be worth (once I do some clean-up to make it ready for showings.)

Of course, I still have my handy spreadsheet that shows "investing profits from sale" vs. 9 years from now when the rental mortgage is paid off and I'm much more cash-flow positive, that makes me question some of the suggestions to sell.

MyCircus, MyMonkeys

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Re: Don't let me squander a potential windfall- selling rental home
« Reply #4 on: May 03, 2016, 12:43:53 PM »
Neogodless, The rent is at $995 right now, but CLEARLY I am the last person to ask about rental strategy! This house has been a losing proposition since we first bought it, and only now will we maybe make enough to zero out this mistake (never mind the lost opportunity cost, it hurts to count that too). As to the $165k figure, that's what one realtor told me- I'm requesting two other evaluations, to make sure that is realistic (and not inflated to make me sign with him). 

Platypuses, thanks for catching the error.

Drifterrider, the estimated $165k is the potential listing price, based on comparable sales in the last three months.  Based on what the realtor said, the comps are based on sales within two miles, within 1000-1200 square feet, and built around 1958, +/- 5 years.

Thanks all for the comments, though.