Relocating for work. Should I sell my home or rent it out?

Question

Hi everyone! I'm new to the group and new to real-estate investing. I've been researching the better part of the last year and getting ready to make a move soon. My goal is to build a portfolio of rental properties and eventually even hotels. I've been in the hotel business for 17 years helping others build wealth and now I want to get in the game! I recently accepted an offer for a new job, which requires a relocation from Miami to South Dakota! I currently own my house (this was my first home purchase). I have an FHA mortgage with a nice interest rate of 3.125%. I've owned the single-family home for about three years now (it's also three years old, as I bought it as a new-construction home). I have about $200,000 in equity in the home already (95% through appreciation). Should I sell it and use the equity to begin buying rental properties? Or should I hold onto the home and rent it out as my first rental home? I realize that to answer this question specifically depends on many variables. However, in general for those of you out there who have been doing this a while what do you think? From my research I believe the property can cash-flow $200 to $400 per month after all expenses, mortgage and vacancy, CapEx, maintenance. Lastly, the home is not near the beach -- it's in a suburb and STRs aren't allowed so if I keep it, it will be long-term rental only.

Thanks all! Either way I'm excited about the potential; and this job change has given me a chance to get started in my real-estate career a bit sooner than I anticipated!

Thanks all!  Either way I'm excited about the potential; and this job change has given me a chance to get started in my real-estate career a bit sooner than I anticipated!

Cory J Thornton · Answer

@Clinton Cox - Congratulations on the new job and on taking the plunge into Real Estate Investing! Any thoughts that I have below I would treat as bread crumbs, then verify them with your CPA or a local pro to ensure that it holds true to your scenario.

Here are a few things that came to mind when reading your post:

1) There are few times in life where you can make a profit without the government stealing a chunk of it. When you sell a primary residence, as long as some basic parameters are met, the government does not tax your gains. If you convert the property to a rental home, then go to sell it after a few years, it will likely be subject to capital gains taxes. My wife and I have done three "live in flips" over the past 10 years and each time, it leapfrogs our balance sheet because we jump ahead and don't lose the gain to taxes.

2) Is there a chance with the new job that you could be transferred back to FLA or is there a chance you want a path back to FLA in case you don't end up liking SD? I don't know much about South Dakota, but if you are  FLA native, then Miami to SD could be a real culture/ temperature shock.

3) I don't remember who said this first, but I have heard it several places (Jason Hartman, Robert Kiyosaki, ...)  Right now with CPI at this level, cheap debt is very much like an asset. If the CPI is 8% and your loan is at 3% then the time value of money kicks in and the government is depreciating the value of your debt with the 5% delta between those two numbers.

4) One thing that may help is to figure out the ROI you will most likely get converting your home to a long term rental. Do some due diligence on the market where you are moving, and see what kinds of returns can be expected in that market.

5) This could be a house hack opportunity for you. Not being a native of the area, you may not find the exact right area for you on the first try. It may be worth considering finding a house hack (if it works for your family situation), and do that for a year. Then, once you know the area and are established in the new job, buy your home, and lease out your property.

Having equity and a low interest rate means you have the blessing of options ... it will all come down to which strategies you think will be the highest value as you consider your goals.

Congratulations again on the new job ... keep us posted on your investing journey!

Clinton Cox · Answer

Thank you so much everyone for the great advice.  Apologies for the late response, I'm just now getting back from my extended holiday break with the family.

So, it seems the consensus opinion is to keep the house in FL and rent it out -- which is what I've decided to do as well. It's tempting to sell and cash out, but I see great long-term value in keeping an asset in a high-appreciation market like Miami and in a new and strong neighborhood with great schools, shopping, hospitals, military, recreation and employment centers nearby -- and all with a low-interest note on the property!  Also, something I didn't mention in my OP is I have family nearby in FL who will help me manage the property remotely, so that factors into my decision as well.  Also, my career experience is in mostly extended-stay hotel management, so I know a thing or two about property and asset management.  I plan to rent a low-cost apartment in SD for six months until I can find house hack opportunity up there.  Not in a huge hurry -- I want to find a good deal.

Again -- thanks for all the great feedback.  This group is such a great forum and resource and I'm glad to be part of the BiggerPockets family going forward.

Happy New Year!!!

Ash Hegde · Answer

A couple of items to consider:

Does that cash flow number include the increase in property taxes that will happen when you lose your homestead exemption?

If you sell you can avoid capital gains taxes since it was your primary for more than 2 years.

Just playing devils advocate, getting a HELOC and renting may still be the best bet.

Greg H. · Answer

@Clinton Cox

From Florida to South Dakota is a huge change and will be a huge culture shock !! Where in SD?  I actually own a home in South Florida and we spend our summers at our place in Deadwood SD and love it up there.  I want no part of the winter as they are expecting up to 30 inches of snow in the next day or so

Personally, I would sell the property and I would most most most definitely sell if I were in your shoes because:

-Any profit up tp $250k if single and $500k if married is tax free as you have occupied for at least 2 out of the last 5 years

-You have no experience with rentals much less from 2000+ miles away.  You are at the mercy of a property manager.  One turnover will cost you thousands and ruin years of "cashflow".  While many on BP will tell of success with renting long distance, keep in mind most with horror stories never post

Take the free money and start you career in South Dakota

Osazee Edebiri · Answer

I would keep the Florida home and wait till the market starts going up again to sell. There are concerns about renting your home long distance, at the end of the day it is one SFH that is new, which means low maintenance. So as long as you get a good tenant in from the start it shouldn’t be that difficult to maintain. Plus, If you have that much equity in it there that means you actually have room to learn how to operate your long distance investment, should any issues arise.

Take equity out if you don’t have enough savings and purchase a House Hack in SD.

Becca F. · Answer

@Clinton Cox

I agree with the above comments. Keep the Miami house and rent it out.

I kept my Indiana house and rented it out just in case it didn't work out in the San Francisco Bay Area, I could have home to move back into. I did a cash out refi $50,000 last year since home values increased significantly over the past 3 years. I pulled the equity out to help renovate a California property. My property taxes increased to 2.771% when the county figured out that I was renting it out and not living in it so my cash flow has decreased. It was in the 1% range as a primary home owner. Your estimated cash flow numbers are better than mine but I bought the house for a low price (no renovation needed) it was worth keeping it. It's in an appreciating nice suburban area with a good school district so there are other factors besides the immediate cash flow. Good luck with the move and new job!

Robert Olinick · Answer

The first thing we would do is evaluate what a long term rental can bring you each month on a net basis given a few options. I.E do we start with a small renovation to reach $x rent? Or do we go as-is for $x rent and delay any maintenance/rehab. As a CPA, I'd love to not only discuss what your net payout could look like, but we can also go over the tax savings you may receive from rentals!

Jay Thomas · Answer

With an established rental property already at your disposal, I'm sure you're well on your way to a successful real estate investment portfolio. SD is a great place to invest in real estate and it will provide you with plenty of opportunities for growth. By taking out a line of credit on your current house, you'll have the capital necessary to purchase the new property you're looking for. With careful budgeting and wise investing, the cash flow from your new investment should take care of the line of credit payments. Best of luck with your venture! I look forward to seeing you out shoveling snow soon!

Greg Schreffler · Answer

Rent.

Scott E. · Answer

$400 per month in cash flow compared to $200k in equity is not a good return on equity (2.4%)

But with that being said, I agree with the other posters that due to your Florida home being in a great location AND due to you being locked into a very low interest rate, it probably makes sense to hold the Florida home as a rental.

Try to see if a bank will give you a HELOC to access your equity before you move.

Relocating for work. Should I sell my home or rent it out?

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