Buy a Cheap Home to Make a Profit?

by : Steve Gillman

Selling your home and buying a cheap home instead can sometimes be a good way to make a profit. The tax law lets you do this repeatedly. What is the downside of this strategy? You have to move a lot.

The idea here is simple. You sell your house, and move into one that costs less. You get to pocket the difference without paying taxes on the gain, thanks to the tax law that lets you take an exemption on the capital gains from the sale of your home.

There are three basic ways to do this.

1. Downsizing For Retirement

Maybe you don't need a big house any longer. The kids are on their own, and you are tired of cleaning 3,000 square feet of space. Fortunately, you have paid off the mortgage loan, so when you sell for $355,000 and buy that cute little house nearby for $220,000, you get a nice chunk of cash to play with.

2. Moving To A Cheaper Town

Perhaps you are retired, or you just have a business or profession that can be pursued anywhere (like this internet business that lets us live in the mountains of Colorado). If you don't have any other big reasons to stay in the city you are in, you have an opportunity. A house just like yours can be bought for half the price somewhere else.

In 2002 we paid just $17,500 for a two bedroom home in a beautiful mountain town in Montana. It had hardwood floors and a full basement, and it would have cost five times that much an hour away in Missoula. We have moved a few times since then, but even the house we are in now would be twice as much in Tucson, Arizona, where we last lived.

The point is that there are great differences in prices of homes around the country. Sometimes the low priced homes are in areas where you wouldn't want to live. But often they are in great little towns and big cities that you might love to live in. It is easy to research all of this on the internet now, starting with our own web site,

Find a town you love and buy a house for $60,000 less than you sell your current home for. That's a $60,000 profit for all practical purposes. You might even live in a nicer home and a nicer town.

3. Moving With The Real Estate Booms

You could use this strategy repeatedly, if you do your homework. Buy in an area just before a real estate boom, then after your home goes up in value, sell it for a tax-free profit. The tax code allows you to do this every two years. Before selling you find the next town that is about to boom, and start shopping for a cheap home there. Do this six times in your life and you might build up a nice little nest egg.