harley
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
DW and I have been thinking hard about moving back to our old haunts, closer to DD and family, as well as other friends and family. We aren't in a huge hurry, but it's definitely on our agenda. We're currently snowbirding between the Eastern Shore of MD and the Gulf Coast of FL. We love our house in MD, but the 3.5 hr. drive to where DD lives makes it a difficult trip, especially since we have to deal with the DC Beltway as part of the trip. We've gotten a little spoiled by living in a less dense, more rural area, with far less aggressive traffic, at least when the summer crowds are gone.
The hard part of making the move would be giving up our lovely house with a pond and amazing views of the bay. We're looking for something with single level living (master bedroom on main living level), as we're not getting any younger. Also we've both dealt with parents becoming infirm and unable to deal with stairs and such. We've found numerous houses we like, but they're all in places where we'd be stacked on top of other people. The Northern VA area is pretty dense, and they are putting houses anywhere they can shoehorn them in.
To make a long story slightly less long, we've found a really nice house design. The houses they are building are, like most, packed tight like sardines. However, the model is in a different part of the community and is on a nice half acre lot with no other house within a stone's throw from us. At least, as far as I can throw these days. Also, it backs up to farmland and a conservancy, so the land should stay open for the foreseeable future. It's really quite lovely. Being a model, it's decked out, probably a little more than we'd have chosen had we bought one that wasn't built out yet, but not too much. We tend to go fairly top of the line.
The situation is that since it's a model, they're willing to sell it to us but would need to lease it back until they've sold all the rest of the houses they are building. The contract would guarantee at least one year, with up to 20 3-month extensions. So a max of 6 years. But most likely it would be a year or two or three. The lease/rent would be quite reasonable, especially since no one would actually be living there and using the facilities. They'd pay the HOA fees while they are there, take care of the lawn and gardens, and do any cosmetic repairs that were needed. I suspect these would be minimal, and that keep the place looking nice since it is their model. The rent would be ~8% of the cost of the house per year, so not a bad return. We'd have to pay the taxes and insurance, but since we'd be buying it for cash there wouldn't be a mortgage to deal with. We have enough after-tax cash to pay for it, so we wouldn't have to liquidate assets that would create a significant taxable event. So we'd continue to live in our beach/FL houses until they were finished, then we'd put the MD house on the market and move. The money for the new place would be a decent chunk of our investable assets, but not a majority of it. When we sell the MD place, God willing, we'd recover pretty much the same amount or more. The income from the rental would push us out of the 15% bracket, so no more Roth conversions or 0% CG stock sales, but only for a few years. I know it might take a while to sell the MD house, so that's a negative, but I'm willing to sell for the market price. I know I'll be taking a loss no matter what, and I accept that. So I wouldn't keep it on the market for an extended time to get a higher price than the market would bear.
So my questions are, has anyone else ever done this sort of lease back deal? If so, what are the negatives I haven't thought of? Also, since we'd be renting the place we'd be forced to take depreciation just like with our other rentals. However, since we wouldn't be selling and instead would be moving in would we be required to recapture the depreciation? This would be a second home, since FL is our primary residence, so I'm not sure how that would effect things. There are obvious possible problems, like another housing collapse or some other black swan, but sometimes you take chances. And since this is a DC suburb, history indicates that even a 2009 would tend to be recovered from fairly quickly. So, don't be afraid to be frank. I will appreciate any constructive opinions.
The hard part of making the move would be giving up our lovely house with a pond and amazing views of the bay. We're looking for something with single level living (master bedroom on main living level), as we're not getting any younger. Also we've both dealt with parents becoming infirm and unable to deal with stairs and such. We've found numerous houses we like, but they're all in places where we'd be stacked on top of other people. The Northern VA area is pretty dense, and they are putting houses anywhere they can shoehorn them in.
To make a long story slightly less long, we've found a really nice house design. The houses they are building are, like most, packed tight like sardines. However, the model is in a different part of the community and is on a nice half acre lot with no other house within a stone's throw from us. At least, as far as I can throw these days. Also, it backs up to farmland and a conservancy, so the land should stay open for the foreseeable future. It's really quite lovely. Being a model, it's decked out, probably a little more than we'd have chosen had we bought one that wasn't built out yet, but not too much. We tend to go fairly top of the line.
The situation is that since it's a model, they're willing to sell it to us but would need to lease it back until they've sold all the rest of the houses they are building. The contract would guarantee at least one year, with up to 20 3-month extensions. So a max of 6 years. But most likely it would be a year or two or three. The lease/rent would be quite reasonable, especially since no one would actually be living there and using the facilities. They'd pay the HOA fees while they are there, take care of the lawn and gardens, and do any cosmetic repairs that were needed. I suspect these would be minimal, and that keep the place looking nice since it is their model. The rent would be ~8% of the cost of the house per year, so not a bad return. We'd have to pay the taxes and insurance, but since we'd be buying it for cash there wouldn't be a mortgage to deal with. We have enough after-tax cash to pay for it, so we wouldn't have to liquidate assets that would create a significant taxable event. So we'd continue to live in our beach/FL houses until they were finished, then we'd put the MD house on the market and move. The money for the new place would be a decent chunk of our investable assets, but not a majority of it. When we sell the MD place, God willing, we'd recover pretty much the same amount or more. The income from the rental would push us out of the 15% bracket, so no more Roth conversions or 0% CG stock sales, but only for a few years. I know it might take a while to sell the MD house, so that's a negative, but I'm willing to sell for the market price. I know I'll be taking a loss no matter what, and I accept that. So I wouldn't keep it on the market for an extended time to get a higher price than the market would bear.
So my questions are, has anyone else ever done this sort of lease back deal? If so, what are the negatives I haven't thought of? Also, since we'd be renting the place we'd be forced to take depreciation just like with our other rentals. However, since we wouldn't be selling and instead would be moving in would we be required to recapture the depreciation? This would be a second home, since FL is our primary residence, so I'm not sure how that would effect things. There are obvious possible problems, like another housing collapse or some other black swan, but sometimes you take chances. And since this is a DC suburb, history indicates that even a 2009 would tend to be recovered from fairly quickly. So, don't be afraid to be frank. I will appreciate any constructive opinions.
