Expert: Dick Dennis - 12/2/2008

Question
I bought a condo for $174,000 and I've been living there for 4 years, I don't want to sell it because the price has fallen to $ 130,000, so I've been thinking to buy a new house and rent the condo.

If I rent the condo I would get $1,100 monthly, but I have to pay $345 of condo fee, and $262 of taxes. BTW, the condo is already cancelled.  My question is how the taxes would affect me? Would I be able to deduct of my taxes the interest that I would pay for the new house?  How would the taxes be calculated when I sell my condo?  Would I be able to get a good rate in the mortgage for the new house if I put 20% of down payment?

Answer
If you are comparatively young, Solinka, I would recommend you keep the condo and rent it out because it could be as much as 7-10 years before the value of it comes even close to what you paid for it. But before you put the condo on the rental market, do research what the rental market is in your neightborhood, your town. You may find that everybody seems to be doing the same thing. Another thing: You may find that people would rather live in a house rather than a condo, therefore your rent for the condo would be somewhat lower than you anticipated. That's why you should be researching the rental market.

Another thing: if you do buy a house, in today's lending market the banks are being very picky. They will be concerned with you having to make your payments on the condo AND the house you will be buying. If they believe you would not be able to maintain that payment schedule, you may have a difficult time getting a loan. They may say something like, "First show us that you either have sold the condo or rented it out." No, it's not going to be easy, Solinka. I do wish you well.

Dick Dennis          dixiedee13@aol.com