Tuesday, February 9, 2010

Good Time to Buy a Second Home

Part of the extension to the First-Time Homebuyers Tax Credit is what’s known as the Move-Up credit. This makes getting a tax credit for buying a home open to just about everyone. It also opens up the possibility of getting started in real estate investing.

The requirements to qualify for the Move-Up credit aren’t that restrictive. Your income needs to be $125,000 or less if you are single or $225,000 if you’re married. The home you buy needs to be valued at $800,000 or less. So, if you’ve been thinking about up-sizing, down-sizing this is the time. Your new purchase must be your intended primary residence, so it’s not the time to think about purchasing a mountain getaway. What the Move-Up credit doesn’t require is that you sell your current home. That’s where the opportunity comes into play.

Consider buying a home to use as your new primary residence and turning your current home into an investment. Before jumping in do note that there are many factors to consider.

1. Depending on the rental market pricing and your monthly mortgage amount, you can potentially cover your monthly mortgage payments and create cash flow.

2. You can allow your property to appreciate as the market returns.

3. Capital Gains—You’ll get a break on Capital Gains at sale if you’ve lived in our home for 2 of the past 5 years. So, if you’ve owned your home for at just a few years then renting for the remainder of 5 years could save you some taxes. Or, if you’ve owned your home longer, you could pull in some passive income for a few years before selling.

4. If you are buying your new home in a different area and end up not being happy, you can return to your previous home.

5. I think you can guess that being a landlord isn’t easy. You’ll have to deal with everything you had as a homeowner, plus tenants.

6. Added tax benefits—Once you become a landlord, it’s a whole new world of tax benefits. If you’re serious about crossing over to the lordship consult a tax advisor.

Of course, ultimately the decision is a financial one. You’ll need to have a healthy cash reserve to pull this off. Still, it’s not impossible especially during this time when there are still great deals on homes.

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