Sell my house or Rent it?

Question

I’ll be moving in with my girlfriend soon and I’m looking for opinions on whether to rent or sell my house. I have rented it in the past but I am considering selling now. Here is some of the relevant information:

Estimated selling price: $190,000

Mortgage Balance: $74,000

If I sell now I won’t have to pay capital gains tax since I’ve lived in the house 2 out of the last 5 years. I did rent this property for 2 years. This was in 2019-2020.

Rent Price: $1,450

Mortgage, taxes, insurance: $850 ish once I lose my homestead exemption

Property Management fee : $120 ish

The house will have no problem renting.

I guess I’m just looking for opinions on what others would do in a similar situation. If I sold the house I would be investing the proceeds in the stock market most likely, not more real estate. I’ve looked at some Rent Vs Sell calculators online and they are a bit confusing to what is the best option. I understand this is maybe a personal preference question.

Which option will make me the most money over the next 10 years let’s say? Assuming 8% return in the market.

Basit Siddiqi · Answer

Items 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 itItems to consider when purchasing a new homeIf you are using financing, you pay around 5% in fees(Loan Processing fees, title costs, costs to record mortgage, etc)There may be costs to have the property ready for rental use.

Kathleen McDowell · Answer

Hi John. I always recommend clients moving in with boyfriends/girlfriends not to sell their current home. Try renting it for a while first.  Another thing to consider is the volatility of the stock market in an inflationary environment, vs real estate returns which have historically outpaced inflation.  With rising rates it will be hard to get back into an investment property in the future that cash flows should you want to. I know I don't have all the factors, but from what you have shared I would continue to rent it.  I do recommend you run the sale option by your CPA to have more concrete data for your analysis.

Bill B. · Answer

Then you’d save about 15% on about $66,500. So you’d save about $10k in capital gains taxes. Almost 2 years of your projected rent if everything goes well. It’s pretty much a toss up. What’s the backup plan if moving in with the girlfriend doesn’t work? I assume she doesn’t want to sell her place and move in with you? GL either way.

Ps. Drop an @ and then my name (or anyone elses’) and it will tell them you replied.

James Hamling · Answer

Peace of mind @John Hoover, what's that worth?

Interesting fact, did you know 100% of divorces started with marriage?

Point is, nobody jumps into relationship actions thinking "Yup, this is not going to end well". Yeah, it's the "this is awesome" blinders, as it should be, yet about 50% of time things don't work out.

So it's a flip of the coin if you'll need a place of own again. 0-doubt I'd keep it and rent, until those odd's turn a bit more in favor of not needing that home back for self.

Cody M Byre · Answer

It sounds like your main question is what will make you more over 10 years, selling to invest in stocks or keeping it and renting. While the stock market has fallen, offering some deals, real estate has not. However, I would still argue that keeping the property, renting it out, and then selling it after 10 years is your best and safest bet to make the most money. It likely has the lowest risk of losing money also. You could even look into using it as a medium-term or short-term rental to increase the cash flow.

Theresa Harris · Answer

When you rented it  before, did you use  property manager or do it yourself?  I'd try renting it for a year to see how moving in with your girlfriend works out.  I don't follow the stock market enough to know if taking it out of real estate and putting it in the stock market is a good idea or not.  Even if you rented it for a year or two and moved back in, the homestead exemption would kick back in.

Bill B. · Answer

You left out most of the important information.

What did you pay for it? (That’s what determines the gain, taxable or not, the mortgage doesn’t matter.)

Was it a rental first? If so then you’ll still be taxed on the percent of time it was a rental, plus depreciation recapture.

Your cashflow is only about 5-6% of your equity ($6k income on $190k minus $10k selling minus $74k is $106k) but you’ll also be making the principle payment as income so you need to look at your amortization table and add that income.

If the property has been problem free and you can’t sell tax free (it was a rental first) I’d probably keep it as you’re only losing some tax exempt gains. If it’s been a problem home or you lived in before it was a rental then it’s a toss up. You could lose 2-3 years of rental income to additional income taxes.

Try filling in the blanks and @ me if you need more answers.