MojoMan Posted May 12, 2008 Share Posted May 12, 2008 Huddlers, This guy's primary residence was purchased in November 2006. Property values have declined in the area since he bought. If one had to guess, this guy could probably net around $400K when he paid $515K for the place a year and a half ago. No, the guy is not upside down. He said he wanted to have relatively low payments so, apparently, the current principal is about $165K. So, if liquidated, the capital loss would be in the range of $115 and net would be around $235. I'm pretty sure there he has no other debt, just the mortgage. His fiance wants to buy a place together. Together they have a pretty decent income, I'm guessing around $350. She owns a place too but would come out about even, assuming what he told me is correct. I don't know that much about her place. They probably have about $150K cash for a down payment right now (without either person liquidating their house). Loan question: This guy told me that his loan chica said that the loan amount would be predicated on the amount of cash available for a down payment. Therefore, if they have $150, they could get a loan for $750. I thought the amount of debt they're carrying is VERY relevant. With ~$400 in debt (his and hers) they won't get that kind of a loan. True or false? Finance question: We hypothesized what happens if I'm right and, because of his debt, he's gonna need to liquidate his place to buy a decent place, this guy is telling me that it's OK to take a huge capital loss (net would be ~$115 although he could write it off so it's more like $70K). He said that there are financial analysts who say that the opportunity to buy a higher value place in a depressed market should offset the capital loss because the higher value place will appreciate well. That sounds like bunk to me. The argument makes some logic but I would assume that that is a crapshoot at best. Discuss. Quote Link to comment Share on other sites More sharing options...
TheShiznit Posted May 12, 2008 Share Posted May 12, 2008 (edited) I don't think he could write off the loss. If this was his personal residence....and not an investment property.....me thinks he cannot write off any depreciation. I think he needs to hold on to his house until values come up. However, if he bought another house with his fiance......and lived there for 2 of the last 5 years(or something like that) then that would turn it into an investment property and not a personal residence. However, the qeustion would then become one of valuation. Would the value of the properties cost basis be what he has in it....or would it be the value at the time of asset reclassification. Also, he can't just take a write off of capital losses with no capital gains to offset those losses. We need a CPA in here to straigten this out! Edited May 12, 2008 by TheShiznit Quote Link to comment Share on other sites More sharing options...
dmarc117 Posted May 12, 2008 Share Posted May 12, 2008 (edited) banks are being very tight with loans nowadays. i would think the debt would be a considerable hindrance. Edited May 12, 2008 by dmarc117 Quote Link to comment Share on other sites More sharing options...
cre8tiff Posted May 12, 2008 Share Posted May 12, 2008 (edited) I'm still trying to get past the $350K a year is "pretty decent income". Edited May 12, 2008 by cre8tiff Quote Link to comment Share on other sites More sharing options...
SuperCharger Posted May 12, 2008 Share Posted May 12, 2008 Rent both homes out to negate the debt and purchase a new house. Quote Link to comment Share on other sites More sharing options...
dmarc117 Posted May 12, 2008 Share Posted May 12, 2008 and is the depressed market just depressed or fairly valued now.... Quote Link to comment Share on other sites More sharing options...
MrTed46 Posted May 12, 2008 Share Posted May 12, 2008 I'm still trying to get past the $350K a year is "pretty decent income". 350K a year they shouldnt have any problems Quote Link to comment Share on other sites More sharing options...
MrTed46 Posted May 12, 2008 Share Posted May 12, 2008 and is the depressed market just depressed or fairly valued now.... Depressed Quote Link to comment Share on other sites More sharing options...
Atlanta Cracker Posted May 12, 2008 Share Posted May 12, 2008 The ability to get a loan will be based on credit scores and debt/income ratios. That ratio will take into account the down payment but not be a hugh factor. Financing more than 80% would be costly though from an interest rate standpoint even if their income would support it. As MrTed said they should be good. I'm pretty sure you can't write off the capital loss on a primary mortgage unless it's over a certain amount much like you don't have to pay taxes on the gain below a certain amount. He could rent it for the next 5 years and if values haven't recovered write off the loss when selling it then but that depends on whether he wants to be a slumlord or not. Quote Link to comment Share on other sites More sharing options...
MojoMan Posted May 12, 2008 Author Share Posted May 12, 2008 Thanks Huddlers. Good info here. I told him it was a bad idea but the capital loss not being deductable...that should be a deal killer. Quote Link to comment Share on other sites More sharing options...
Caveman_Nick Posted May 12, 2008 Share Posted May 12, 2008 JMO (not my life), but with that level of income you keep both and rent one. You start saving and looking, and when you find the right opportunity you buy the third and rent the second. There's no need to take losses like that. Being a land lord might be a pain, but if that's what deters you then hire a MGMT company to take care of everything. Quote Link to comment Share on other sites More sharing options...
MrTed46 Posted May 12, 2008 Share Posted May 12, 2008 Selling property right now is not wise at all. They make 350k a year (I dont know the region they live in) but they can rent both those properties and still be able to afford another house without too much of an inconvenience. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.