I’m not a big believer in selling a primary home to “make money” unless you already have another home lined up to move into that you bought at a discount or you already have other plans to move out of the area.
So even though you get the $200k capital gains tax benefit….
Why? So you can
..pay about 5-8% closing costs/commission to sell
..pay monthly rent which is probably the same or more than your current mortgage payments (if any), and not have any tax benefits for the rent payments you make (unlike mortgage interest)
..and possibly buy back with a mortgage with a much higher rate and possibly pay higher property taxes
For you to come out ahead, you’re assuming that property values will fall more than all those other things above (an other things I didn’t list) that are additional cost items you will incur just to break even. My crystal ball isn’t so clear and can’t say with a high probability that is the case… Doomsayers will say otherwise. But it’s certainly not something I would personally do only for a $200k gain….. unless you are totally cash strapped and/or plan on moving to a much lower cost area like Mexico.
I talked about this conundrum with many folks. Yes, when home prices go up, you’re really happy because the property value of your primary goes up. You’re initial response is “wow, I can sell this place”, make a lot of money, and “do something with the extra money”… And then reality hits. Shit, I still need a place to live…. And then reality sucks… Well, shit, that place that I really like now costs a heck of a lot more…And crap, if I buy it now, I need to pay a heck of a lot more in property taxes than I did before….So my exit strategy was… Take advantage of either a low mortgage OR a very awesome equities market so that you can pay off your mortgage…and rent your primary house at the ridiculous high prices the current market conditions allow you to… to maximize your rental income while the going is good….Your rental income across your properties just might more than cover the new mortgage payments of the new home you are thinking about.
