buying foreclosed homes

**musclestack** · 02-22-2012, 09:39 AM

Anyone have any sources with some info on buying/selling foreclosed homes? I know you can pick them up dirt cheap, but what happens after you sell it at (or close to) market price? Do you get nailed with capital gain? If so, how much? Can I declare a profit (rental) off the time frame that I hold on to it? What's the easiest way to obtain one? Auction? Go ask the bank?

Any websites or other sources would be helpful.

**Eddie_m63** · 02-22-2012, 12:19 PM

Originally Posted by musclestack

Anyone have any sources with some info on buying/selling foreclosed homes? I know you can pick them up dirt cheap, but what happens after you sell it at (or close to) market price? Do you get nailed with capital gain? If so, how much? Can I declare a profit (rental) off the time frame that I hold on to it? What's the easiest way to obtain one? Auction? Go ask the bank?

Any websites or other sources would be helpful.

I have always purchased true a realty office, they deal with the bank, keep in mind that most foreclosures are cash offers. Also I think right now is better to buy and rent then to flip but just my opinion.

**musclestack** · 02-22-2012, 01:52 PM

Thanks eddie. I thought I heard somewhere that I couldn't declare a profit (rent it out) for 2 years after I bought it. Guess I was leaning towards buying, holding on to it for a couple years, then turning it around??

**JD250** · 02-22-2012, 04:29 PM

There would have to be some special circumstances for you to NOT be able to declare a profit......probably more like you would not be able to rent it out if it were a Govt. program loan or some such, I'm drawing a blank on what it's called, I ran into one of these a few months back and passed on it, not very common anyway. You may be thinking of the way to avoid capitol gains and that would be that you must call it your primary residence for 2 years before selling it at which point you would be able to avoid taxes........those laws are changing so do some research through a reputable realtor before you make any decisions. Remember when your buying properties for long term rentals, they will likely set you up on a 5 or 7 year note.........the fed is looking to unlock the interest rates in 2013 and when they I predict they will skyrocket so when your note is due if you need to refinance........ouch!!!!

**FONZY007** · 02-22-2012, 04:33 PM

Originally Posted by musclestack

Thanks eddie. I thought I heard somewhere that I couldn't declare a profit (rent it out) for 2 years after I bought it. Guess I was leaning towards buying, holding on to it for a couple years, then turning it around??

My realitor bought a foreclosed home, fixed it and currently is still renting it out after owing for 2 months ..

Also I lived in my other home for 2 years and was able to keep all the profits, but it had to be 2 years

**musclestack** · 02-23-2012, 12:51 AM

Originally Posted by FONZY007

My realitor bought a foreclosed home, fixed it and currently is still renting it out after owing for 2 months ..

Also I lived in my other home for 2 years and was able to keep all the profits, but it had to be 2 years

Thanks fonzy. What was the reason you had to keep it for 2 years? Are there any penalties against your realtor for renting it out if he chooses to sell it in the future? What's the best way to procure foreclosed homes? Realtor? Bank?

**FONZY007** · 02-23-2012, 01:30 AM

Originally Posted by musclestack

Thanks fonzy. What was the reason you had to keep it for 2 years? Are there any penalties against your realtor for renting it out if he chooses to sell it in the future? What's the best way to procure foreclosed homes? Realtor? Bank?

You pay capital gains if you sell before 2 years..unless certain circumstances like a divorce!!

Nope none for renting it out

The banks go to my realtor with foreclosed homes for him to sell

**musclestack** · 02-23-2012, 04:03 AM

Fonzy- If I would sell after 2 years but did not list it as my personal residence, would I still have to pay capital gains since it would be more of an investment than a home I would live in? I've seen a lot of foreclosures online that are going for dirt cheap (50-60 grand), and I was thinking about buying a few of them (cash; no loans), then hold on to them for two years and sell them at market price (or a little less).

What bothers me is what JD said about the interest rates in 2013. If they sky-rocket, is there going to be a high demand to buy homes (even if I list them below appraisial price). I don't want to invest in something I can't sell, ya know??

**jasc** · 02-23-2012, 07:38 AM

If the rates jump in 2013 n you wanna avoid the sub 2 yr tax penalty.. Buy the homes n rent them out for a few yrs. If rates jump n it becomes harder to buy/sell properties, you'll have more people looking to rent.

**jpowell** · 02-23-2012, 08:22 AM

a couple years ago, i was an intern for this locally big short sale company. but pretty much its the only way to go to avoid reporting gains and being penalized with taxes. do a google search on that. but as was mentioned your gonna need investors bus most time it cash money deals.

**Flier** · 02-23-2012, 09:39 AM

Latest I heard here in FL is to wait until after the elections, as we will post election have another downturn in the real estate market.

**spywizard** · 02-23-2012, 09:53 AM

the only way to avoid is with the 1 time (oh crap i can't remember what it's called) tax avoidance for selling your primary residence.. only can be done 1 time in a life time.. with that said you can do it every 7 years.. might have changed but check with a tax attorney..

yep down turn in property values, increase in fuel costs, and ..... no matter which party takes the presidency..

**Eddie_m63** · 02-23-2012, 10:00 AM

If you buy cheap it is very difficult to loose money, but why not keep them as rental properties? My goal was to have at least 7 rentals and assuming they were all pay off that would yield a pretty good profit at the end of the month.

**spywizard** · 02-23-2012, 10:10 AM

here in minnesota the rent roll is exceeding the mortgages by 20-35% on a single family home in a suburb.. not the gutter snipe area's..

**musclestack** · 02-23-2012, 03:41 PM

Originally Posted by Eddie_m63

If you buy cheap it is very difficult to loose money, but why not keep them as rental properties? My goal was to have at least 7 rentals and assuming they were all pay off that would yield a pretty good profit at the end of the month.

The reason I don't want to keep them as rental properties is because I don't want all my cash tied up in them. I also have other investment ideas. Would like to just buy cheap and sell high in roughly a 2 year return, then go do something else with my capital.

**JD250** · 02-23-2012, 08:22 PM

If you're fixing them up there is no reason to wait at all. buy em, fix em, sell em, the faster the better, or rent them out, the markets vary wildly across the country and from neighborhood to neighborhood, know your business or it will eat your lunch. Do you do your own carpentry work?

Here's what I was saying about capital gains ..................

Main Property vs. Investment Property

To qualify as a main property, the piece of real estate must be occupied by the owners at least 24 months out of a five year period. By residing in the property, owners can deduct $250,000 individually and up to $500,000 as a married couple on their taxes if they choose to sell the property. If the owner does not reside in the property for this amount of time, they do not qualify for the deduction, unless the homeowner experiences “unforeseen circumstances” as defined by the I.R.S. These circumstances include divorce or legal separation, condemnation or involuntary seizure of the property, death, a change in unemployment status that makes payment of the mortgage impossible, damage to the property due to an act of terrorism, or multiple births resulting from one pregnancy. Owners may choose to rent out the property for the periods of time they are not residing in the unit, and still claim the property as a primary residence.

An investment property has fewer tax exemptions, and a much higher tax rate. Again, this tax rate is based on the income bracket of the investor, and whether or not he is married. Unlike the main property residence exemption, the owner may not take sizable deductions on an investment property unless he converts it to a main residence. However, if an owner improves the property, ‘depreciation recapture’ allows an owner to deduct up to 25% of the costs of the improvements from the capital gains taxes.

Other Exceptions

There are several methods of delaying, reducing, or negating the need to pay capital gains tax on both investment properties and main properties. The most popular is the 1031 exchange, which allows an owner to sell his property and reinvest the money from the sale into another property without paying any taxes. A 1031 exchange can be performed without limit within an investor’s lifetime. Additionally, if a property is passed on as part of an inheritance, the heirs do not have to pay capital gains on that property. Finally, never selling the property also allows an investor to avoid paying capital gains taxes.