Sell or Rent primary residence?

Question

Hello all,

Looking for some sell-or-rent advice.  My wife and I purchased our first-ever home in Viera, FL (on the Space Coast) for $430k back in Oct 2022 with 10% down using a 5/1 4.5% ARM. We're now 2y+ in, and set ourselves up for a live-in-flip. We now have about $100k in equity. I ran the numbers and it looks like our house would not cash flow (between $0 to -$300 /mo) as a rental, mostly due to the astronomical property tax and insurance rates. Our house is the cheapest in our neighborhood, and the Viera area continues to open new businesses and build up with new $650k+ homes. We have CDs maturing at the end of the year that could fund a new primary residence.

Should we:1) Sell it with no Capital Gains tax. Put the profit towards a new Primary residence and ~$50k towards a rental property.2) Rent it out and eat the cash flow loss, hoping rents increase. Use our maturing CDs to buy a new primary residence. Mind you, we've got 3y left before the 4.5% ARM turns variable (+/-2% per year; min 2.5% / max 10.5%).3) ???

Thanks in advance!

Jonathan Greene · Answer

I like number 1 just based on what I read, especially if you can get a new primary and shave off a downpayment for an investment property. Too many people get tied to their real estate, but all assets are tradeable especially when they won't cash flow when you leave them. Even if you decided to do MTR or STR, you would be hustling just to be net positive. I would sell, pat yourself on the back for making good equity, and turn 1 property into 2.

JD Martin · Answer

Forget about hoping for rent increases. Your only real question here is how much additional equity can you earn before you sell before the rate resets and before you lose your capital gains exclusion, versus the opportunity costs if you sold and cashed out now. My guess is in that price range and limited window, you will not make enough additional appreciation to make renting it out make sense, so unless you planned on keeping it forever as a rental you are probably best off selling and cashing out.

Caleb Brown · Answer

Agreed with Jonathan. #1 seems ideal. If you could stomach the negative cashflow or get creative holding is not bad. If you have enough funds to go after another primary I would use those towards that and use the proceeds(if you sold) for another property. I think taxes and insurance will continue to go up so keep that in mind

Julia Lyrberg · Answer

Hi Jason! It sounds like you've done a great job setting yourself up for options. If it were me, I'd lean toward selling to take advantage of no capital gains tax and use the equity to fund your next primary residence and maybe a rental that actually cash flows. Holding onto a property with negative cash flow can be risky, especially with your ARM adjusting in a few years. Plus, with your market's rapid development, you could lock in your gains now while the market's strong. Option 1 seems like the safest and most flexible route.

Bill B. · Answer

Assuming you paid $430k, put down 10% ($43k) so have a loan balance around $387k and $100k in equity means it’s worth $487k. After you sell you’ll probably net $457k?

That’s not a lot of tax savings but it does give you $68k so you can put down 10% on your $650k home. (I’d prefer you found a way to put down 20% and save the PMI as well as lower mortgage origination costs and on going interest costs. But if you don’t have it, you don’t have it.)

At least you made $25k tax free on your $43k in 2 years.

Trevor Finn · Answer

Hey @Jason Dumbaugh,

This is not investment advice just my thoughts:

You’re in a strong position with great options! Selling now avoids capital gains tax and lets you reinvest into a new primary home and a solid rental property, which feels like the safer play given the cash flow challenges and ARM timeline. Renting and eating the loss is a gamble on future rent increases, but the market and high costs might not make it worth the stress. Selling seems like the clearest path to maximize profit and flexibility—especially with $100k equity to work with. Best of luck!

Jason Dumbaugh · Answer

Thanks, Jonathan. I did the analysis on STR as well and it didn't seem profitable. Not really a town people "visit" much, yet. I'm also pretty busy with a full-time job, so trying to vector towards passive investments. STR/MTR seem like a lot of work up front, particularly vetting a team.

Jason Dumbaugh · Answer

Agree, Caleb. In Florida, I believe the Homestead cap resets after a re-fi as well.

Jason Dumbaugh · Answer

Thanks, Julia!

Jason Dumbaugh · Answer

Thanks, Trevor. I agree

Sell or Rent primary residence?

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