Do I sell my house or do short term rental?

Question

So I’m struggling on what to do and need some help. My house is on the the shoreline of CT. Downtown walking distance to everything including the train station. We added a suana and converted our garage  into a a legit gym with turf and all. We can sell for 490k in this market make 200k off the house immediately or do we do Airbnb as we are in  a vacation town. My concerns is when the market drops I won’t get the sale price again and airbnbs pricing in the market will drop as well or I won’t make that $ Airbnb for a few years? Etc.  Do I sell and make the cash and continue to flip houses or keep this house and Airbnb?

Michael Haas · Answer

I agree with @Connor Cushman - HELOC or Cash Out Refi, hold the property as a STR, and use the cash to buy more properties. Leverage is your friend with  3% interest rates, and locking in money for 30 years at 3% may be smartest financial move anyone can make right now... rates are going up, as is inflation.

Additionally HELOCs / Cash out Refinances sometimes give you MORE MONEY THAN SELLING THE PROPERTY! Here in WA we have 1.68% state excise tax on RE sales, + 3% buyer commission & 3% seller commissions, totaling 10% in average selling costs. Add to that any Federal Taxes due on your capital gains and suddenly a 80% LTV refinance (tax free!) gets you about the same amount of cash in hand... but you still own the property!

Connor Cushman · Answer

Refinance and get some cash out along with a great interest rate. Short term rent and see how the first year goes. Sounds like you could make a killing with that place and find better returns than you would most other places. Sell whenever you want in another year or two after prices continue to go up from the inflation train we’re all about to take a ride on :)

Manuel Salce · Answer

You also must take into a account that I you sell with-in that first 5 years of moving, it's 200k tax free. The tax savings should be added to the sell column.

Basit Siddiqi · Answer

@Jenn MarinoItems to consider when selling a houseYou may pay around 7% to 9% of the value of the home in fees(Realtor Commissions, Title costs, Title Insurance, Stamps etc).The sale may also result in taxes(Federal taxes + State Taxes).You might be able to avoid taxes by doing a 1031 exchange or QOF Fund.You no longer have an asset that can potentially provide you cash-flow / appreciation.Do you think you can make up the 7% - 9% in fees + Taxes over time by buying another property?Items to consider when you rent the homeYou will collect gross rental income and pay for expenses(Insurance, RE Taxes, Interest, Repairs, etc). Hopefully you are cash-flow positive on the property.The property will gain or lose value over time.Are you happy with the cash-flow and appreciation? Keep itDo you think you can find another property that will Cash-flow / appreciate better and also cover the 7% - 9% fees described above? Sell it

Jonathan R McLaughlin · Answer

Well, how much money are you making from the STR? Hard to give a recommendation without knowing that. Still, 290K is about 1.5M of purchasing power if you keep all of it, so I'd think VERY hard about exchanging into a larger property. I mean if you still want to airbandb what can you get for that 290K

Deanna O. · Answer

Taxes will probably be the deciding factor -- parting with capital gains on $200k is painful. 1031 exchange can help, but it will depend on finding something you want. That said, is Airbnb actually a "thing" in that exact area? Hint; if there are lots of hotels nearby it's probably a good bet. Also, how expensive are they -- if I can go to a clean decent 2 star hotel for $100, I tend to chose that as the "least hassle" option. If the only things around are $250-500 4 stars I start looking really hard to find the Airbnbs that might work, even if I have to drive a bit (I travel for work...a LOT). If there aren't any hotels in the area there probably isn't enough of a tourist market to support them....or you. 2-4 week "work-cations" are still a thing for the work-from-home crowd if fast solid internet is avail.

Caleb Brown · Answer

I love STR. You can self manage or bring in a PM. You can use the equity and pull a HELOC. Use the funds to further invest

Theresa Harris · Answer

What do you want to do?  STR can bring in more money, but they take more time and money to manage.  If you sold it, what would you do with the money?  How would you feel if after fixing it up, someone trashed it?

Danielle Jackson · Answer

Run the numbers and let that guide your decision. STR is a lot of work but can be very profitable, especially in a vacation town. Sounds like you have significant equity you can tap into, but hard to provide any insight without knowing all the details.

Colleen F. · Answer

@Jenn Marino  Good problem to have!  First ask yourself do I want to be a STR owner with the responsibility that entails managing guests?  Do you need the profit now from a sale?

I would then run the numbers.  What is the income vs financial liability on this house?   Do you own it free and clear or is there a mortgage? What would it cost to get up and running (furnishing, ect)? What would it command in rent? What is the is the high season?  What % of the time would it be fully rented at max rates vs vacant vs discounted rates? You are in CT so I don't believe it would be year round. Run the numbers.

No one can predict the market. It may sell now for a premium and drop later but how much? Who knows?  If your STR numbers look good your question is more about what you want to do for a living flip or STR?

Do I sell my house or do short term rental?

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