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SFH#1 is officially sold!

June 19th, 2007 by Kenric

Got the money in my account this afternoon.  Finally after 2 failed contracts my house was finally sold. Selling this house has been one of the oddest experience my realtor and I have had.

This house has gone under contract within 3 days after it has been listed!  While that in itself is not a big feat, it’s the fact that it has happened 3 times.  In this tough real estate market that is just unbelievable!  People who have walked through the home have wanted it right away.  It has baffled the realtors of similar homes on the block which lay active for over 100 days.  I have gotten multiple offers, full price offers, only to find the buyers flake at the last minute.  I really think that the home theater and pool were the big selling points.  Finally buyer #3 came through and put me out of my misery.

There were alot of lessons learned from SFH#1.  I know that this house was my primary residence and that I shouldn’t look at it as an 100% investment, but I can’t help it.  Here are some round numbers that include realtor commissions and home improvements subtracted from the sales price.  Looking back at the housing bubble, it’s pretty obvious that the best time to sell would have been the day I closed.

Purchased -$268,000

If I would have sold:

• Flipped right away - $415,000 ($147,000 profit – $56,000 taxes) = $91,000 profit
• Almost sold 1st time – $393,000 ($135,000 profit – $45,000 taxes) = $90,000 profit
• Almost sold 2nd time – $380,000 ($112,000 profit – $22,000 taxes) = $90,000 profit
• Finally sold 3rd time – $344,000 ($76,000 profit – no taxes) = $76,000 profit

The damage isn’t that bad after looking at it.  Although the market price of the home dropped almost $70,000.  My net profit dropped only by $14,000.  I did not take into account mortgage payments at all because I was living in the home.

You can see how taxes played a huge roll in my profit.  If I would have flipped right away, I would have been launched into the 33% tax bracket.  When I almost sold it the first time I would have been in the 28% tax bracket.  When I almost sold it the second time I would have been in the capital gains 15% bracket.  And finally when I sold today, I am able to take the primary residence capital gains exemption.

Hindsight is always 20/20 but I’m going to tell you what I think I should have done.  I should have flipped the house right away.  

Because of the huge potential tax bill I tried to hold it for 1 year to get to the capital gains tax rate.  My math showed me that “if” the housing prices remained steady.  The drop from the 33% tax bracket to the 15% bracket would save me $26,000.  With a mortgage payment of $2,000/mo I would have been able to live in the house for free for 13 months.  This is the main reason I did not flip.

What I didn’t account for was that during that year, I put $15,000 of home improvements into the house.  Living in the house a year I had to install landscaping, get window treatments, get appliances, etc…  I wouldn’t have had to buy any of these for the house if I had just flipped it.  Oh yeah, the home theater cost around $4,000 which was sold with the house.  Then once I past the 1 year mark by a few months, making it to the 2 year mark would have saved me $22,000 in taxes.  So I waited…

Even though this worked out pretty well at the end I’m reminded by the saying, “A bird in the hand is worth more than 2 in the bush.” Take the money and run… and then pay taxes.  Don’t worry about the taxes, you may have no money to take when the time comes.

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