To stay, sell, or rent

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To stay, sell, or rent

Russell Newton
Member since 2023 · 2 posts · 3 votes

Trying to get into real estate investing but not sure if it's the right time. We owe about 113,000 on our (3br 1ba) home and it currently is valued at 190,000. Our interest rate is 2.875% on a 30 year mortgage that began in 2020. We're in a college town and believe that we could get $1300 a month for it. Our mortgage + taxes + insurance + PMI is around $750.

Life context, my wife is finishing her degree in May of 2024. We have a 1.5 year old and have another one on the way. We'll need a bigger home in the next year or so and we could move in with my parents while she finishes school before beginning to work as a teacher. 

Given the state of the economy, should we stay put and wait until we have another income before making any moves? Should we sell and live with my parents and begin to build? Or should we rent our home, live with our parents, and see what the economy does and decide later to build?

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Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y

@Russell Newton, there ya go! So, it sounds like you are looking at a capital gain of $50-70k. Is it it to you to sell now and be exempt from tax on that gain or sell later after renting it several years and take that hit.

Me, I would probably sell and buy 2 duplexes and have 4 cash-flowing units working for me with no additional money out of pocket.

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  • Devin JamesPro Member
    Developer · Orlando, FL · Member since 2018 · 502 posts · 306 votes
    3y

    Hey Russell Newton,

    I think most would agree to keep that 2.875% interest rate, thats gold. 

    I think your two best options are:

    - Stay at your current home & save until you have the income for another property

    - Rent your current home, move in with your parents and save until you have the income for another property

    The better financial decision will be the latter, but you will need to make sure your wife is on board with that sacrifice for the extra income.

    [email protected]
    0Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    3y

    I would save until you can buy another house. Rent out the one you are in once you move out. Seems like it's a good one to hold for the next few years then 1031

    0Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    3y

    @Russell Newton, I disagree a little here depending on the details. If you bought the house for $190k and can sell for $190k, then I might rent because there is no capital gain at this point anyways.

    However, if for example, you bought at $120k and can sell at $190k that is a $70k capital gain that you DO NOT HAVE TO PAY INCOME TAX ON because it was your primary residence. You lose that benefit if you rent it for some years as it needs to have been your primary residence for 2 of the last 5 years prior to the sale. Yes, you can use a 1031 exchange to roll proceeds into a new investment if you rent it, and that it good, but not as good as not owing tax at all.

    You could use that tax free equity to buy a cash-flowing multifamily or use part of it towards the down payment of the new house etc. Lots of flexibility when you have TAX FREE cash in your pocket. 

    0Reply
  • Russell Newton
    OP
    Member since 2023 · 2 posts · 3 votes
    3y

    @Kevin Sobilo We bought it for $130k, and owe $113k on it. It could sell for anywhere between $180-200

    1Reply
  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    3y

    @Russell Newton, there ya go! So, it sounds like you are looking at a capital gain of $50-70k. Is it it to you to sell now and be exempt from tax on that gain or sell later after renting it several years and take that hit.

    Me, I would probably sell and buy 2 duplexes and have 4 cash-flowing units working for me with no additional money out of pocket.

    1Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    3y

    I agree with Kevin. Great to be able to upgrade!

    0Reply
  • Mack Lengel
    Smokies / Greenville, SC · Member since 2021 · 129 posts · 146 votes
    3y
    Quote from @Russell Newton:

    Trying to get into real estate investing but not sure if it's the right time. We owe about 113,000 on our (3br 1ba) home and it currently is valued at 190,000. Our interest rate is 2.875% on a 30 year mortgage that began in 2020. We're in a college town and believe that we could get $1300 a month for it. Our mortgage + taxes + insurance + PMI is around $750.

    Life context, my wife is finishing her degree in May of 2024. We have a 1.5 year old and have another one on the way. We'll need a bigger home in the next year or so and we could move in with my parents while she finishes school before beginning to work as a teacher. 

    Given the state of the economy, should we stay put and wait until we have another income before making any moves? Should we sell and live with my parents and begin to build? Or should we rent our home, live with our parents, and see what the economy does and decide later to build?

     @Russell Newton congrats on the growing family!

    You are in a great position to begin snowballing success. You cannot go wrong with keeping the home a having a couple hundred bucks a month of income. The question is what move will be the best for your finances and your family? There is a lot that can go into determining that but the biggest thing is what is your equity doing for you. If you could double the cashflow by selling and buying more property then that would make sense to do so. Take some time and really look into the specifics. @Jonathan Anderson helps people with stuff like this all day every day so he should be able to go through the whole process with you and find the best course of action!

    1Reply
  • Jonathan AndersonPro Member
    Real Estate Agent · Greenville, SC · Member since 2016 · 198 posts · 105 votes
    3y

    Thanks for the tag, @Mack Lengel!

    Russell you definitely have a challenging dilemma here! I'd be happy to sit down with you and discuss it if you're here in Greenville!

    1Reply
  • Melanie ThomasBusiness Member
    Real Estate Broker · San Antonio · Member since 2022 · 1k+ posts · 489 votes
    3y
    Staying put is the least risky option. Your current payment is reasonable and you may not want to add additional financial responsibilities with your little on the way and wife finishing her degree.

    Selling and living w/ parents. If you decide to sell your current home, you could potentially use the equity (the difference between what you owe and the home's value) to start building your next home or invest in other ways. However, this could mean living with your parents for an extended period, which comes with its own challenges. I know this from experience! ><

    In all cases, remember to account for all costs. If you sell, there will
    be transaction costs. If you rent, there will be property management
    costs, either in time or money. Look at the big picture.






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