URGENT Keep renting or sell!

Buying & Selling Real Estate
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URGENT Keep renting or sell!

Lucas Laria
Member since 2023 · 2 posts · 0 votes

Hi everyone,

I am new to the forum but have been listening to Bigger Pockets podcast for sometime now. I am currently at a crossroads for selling or renting a single family home I own in Virginia. 

The house is 5 years old (I bought it new) with brand new pre finished hard wood flooring I put in along with a fresh paint job. It is located in Northern Virginia and I could either rent the house at $2,800.00 per month and cash flow about $900.00 per month after accounting for monthly costs. This is about 4.5% return on equity I have in the home. The house is in a strong and developing community. 

OR I could sell the house and walk away with about 210k in cash and avoid any tax exposure because I lived there 2 out of the last 5 years. My plan would be to earn 5% interest on the money in a CD or Bond while I look for another investment opportunity. 

It is my only rental home and I would like to own more homes in the future but interest rates rising it also makes it difficult to purchase homes. Am I messing up by selling my one and only rental home that returns a decent cash flow rate and has a decent mortgage rate at 4.3%?


Any pointers or guidance is appreciated 

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Randall AlanPro Member
Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
3y
Quote from @Caleb Brown:

I would try to keep and pull a HELOC. The 210K in equity is quite a bit so if you cant tap into then sell. Just make sure you are seeing what deals are out there before doing that, 5 years ago the market was different from now

 So I'm going to say sell before the 2 of 5 year period is up.  If the entire $210,000 was a capital gain, that is a $31,500 hit you would take when you sell it after 5 years.  That is 35 months of pure profit you would give to Uncle Sam to keep it past your grace period for living in the house.  The $210,000 you net is 233 months (that's 19.4 years) of your $900 profit you get when you walk away, cash fat and you don't have to worry about maintenance, tenants, etc.  You can then use part of your profits to leverage more than one new investment.  If you took $150,000 of your profit and redeployed it you could buy $600,000 worth of new real estate financed at 25% down.... leaving you $60,000 to enjoy / do something else with.

Lots of ways to look at it.  No answer is probably right or wrong.  Just what works best for you.

All the best!

Randy  

@Lucas Laria

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  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    3y

    I would try to keep and pull a HELOC. The 210K in equity is quite a bit so if you cant tap into then sell. Just make sure you are seeing what deals are out there before doing that, 5 years ago the market was different from now

    0Reply
  • Randall AlanPro Member
    Investor · Lakeland, FL · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Caleb Brown:

    I would try to keep and pull a HELOC. The 210K in equity is quite a bit so if you cant tap into then sell. Just make sure you are seeing what deals are out there before doing that, 5 years ago the market was different from now

     So I'm going to say sell before the 2 of 5 year period is up.  If the entire $210,000 was a capital gain, that is a $31,500 hit you would take when you sell it after 5 years.  That is 35 months of pure profit you would give to Uncle Sam to keep it past your grace period for living in the house.  The $210,000 you net is 233 months (that's 19.4 years) of your $900 profit you get when you walk away, cash fat and you don't have to worry about maintenance, tenants, etc.  You can then use part of your profits to leverage more than one new investment.  If you took $150,000 of your profit and redeployed it you could buy $600,000 worth of new real estate financed at 25% down.... leaving you $60,000 to enjoy / do something else with.

    Lots of ways to look at it.  No answer is probably right or wrong.  Just what works best for you.

    All the best!

    Randy  

    @Lucas Laria

    6Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    The tax implications are important. I would sell while you still meet the 2 out of 5 year rule.  The cash flow is good, but does it make up for the tax loss?  You bought the house to live in and it became a rental.  Look at a house that would work as a rental and run the numbers.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    Keep it and rent it.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
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    2Reply
  • Josh Edelman
    Real Estate Agent · Las Vegas · Member since 2018 · 197 posts · 143 votes
    3y

    Consider renting it out as a means of generating income. Even if you only pay down the principal, eventually you'll sell the property and earn a profit. If you can manage the property and earn potential monthly income with some extra effort, why not take advantage of the opportunity?

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    3y

    It's a math exercise.  Compare existing and reinvested returns (including tax implications) and you have your answer.  Spoiler alert - it's going to be hard to justify keeping the existing property based on the tax implications if you had a lot of appreciation.  I can't believe other members ignore this aspect.  In many cases, the lost tax benefit is worth a decade or more of returns.

    4Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    3y

    I am usually in the keep-it camp, but this one might be a good one to sell. The tax advantage is huge, you can't just walk away from that. Also, it does not sound like this house is an ideal rental property in terms of price point, still new-ish condition etc. Primary homes seldom make for ideal rental properties.

    2Reply
  • Lucas Laria
    OP
    Member since 2023 · 2 posts · 0 votes
    3y

    Thanks to everyone for taking the time to provide insights. I think I am going to put the house on the market to capitalize on the appreciation in the home and the tax advantages to selling now rather than later. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3y
    Quote from @Mike Dymski:

    It's a math exercise.  Compare existing and reinvested returns (including tax implications) and you have your answer.  Spoiler alert - it's going to be hard to justify keeping the existing property based on the tax implications if you had a lot of appreciation.  I can't believe other members ignore this aspect.  In many cases, the lost tax benefit is worth a decade or more of returns.


    Absolutely  properties can be replaced TAX FREE income only happens to owner occ . take the money and find something else.. Once U convert to income property you lose that free gift  and who knows how long that is going to be here.
    Podcast Guest on Show #222
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    2Reply
  • Christopher Bellacose
    Investor · Buffalo, NY · Member since 2014 · 4 posts · 5 votes
    3y

    Sell

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Lucas Laria:

    Thanks to everyone for taking the time to provide insights. I think I am going to put the house on the market to capitalize on the appreciation in the home and the tax advantages to selling now rather than later. 

    You can always buy again, with higher appreciation and your interest rate that's not too low (4 something is not great), I would rather sell especially since it already reaching 60-65% LTV perhaps.
    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Lucas Laria:

    Hi everyone,

    I am new to the forum but have been listening to Bigger Pockets podcast for sometime now. I am currently at a crossroads for selling or renting a single family home I own in Virginia. 

    The house is 5 years old (I bought it new) with brand new pre finished hard wood flooring I put in along with a fresh paint job. It is located in Northern Virginia and I could either rent the house at $2,800.00 per month and cash flow about $900.00 per month after accounting for monthly costs. This is about 4.5% return on equity I have in the home. The house is in a strong and developing community. 

    OR I could sell the house and walk away with about 210k in cash and avoid any tax exposure because I lived there 2 out of the last 5 years. My plan would be to earn 5% interest on the money in a CD or Bond while I look for another investment opportunity. 

    It is my only rental home and I would like to own more homes in the future but interest rates rising it also makes it difficult to purchase homes. Am I messing up by selling my one and only rental home that returns a decent cash flow rate and has a decent mortgage rate at 4.3%?


    Any pointers or guidance is appreciated 


     another way of thinking: if you may have plan to move there in the future, don't sell. If no chance, Sell.

    For example, fo Hawaiian property I would never ever sell it. But for mainland US property, I am OK if I have to sell it tomorrow.

    0Reply
  • Khoa Ha
    Real Estate Broker · Garden Grove, CA · Member since 2017 · 159 posts · 55 votes
    3y
    Quote from @Lucas Laria:

    Hi everyone,

    I am new to the forum but have been listening to Bigger Pockets podcast for sometime now. I am currently at a crossroads for selling or renting a single family home I own in Virginia. 

    The house is 5 years old (I bought it new) with brand new pre finished hard wood flooring I put in along with a fresh paint job. It is located in Northern Virginia and I could either rent the house at $2,800.00 per month and cash flow about $900.00 per month after accounting for monthly costs. This is about 4.5% return on equity I have in the home. The house is in a strong and developing community. 

    OR I could sell the house and walk away with about 210k in cash and avoid any tax exposure because I lived there 2 out of the last 5 years. My plan would be to earn 5% interest on the money in a CD or Bond while I look for another investment opportunity. 

    It is my only rental home and I would like to own more homes in the future but interest rates rising it also makes it difficult to purchase homes. Am I messing up by selling my one and only rental home that returns a decent cash flow rate and has a decent mortgage rate at 4.3%?


    Any pointers or guidance is appreciated 


     In addition to monthly cashflow, how much of the monthly mortgage will go to the principle per month? This will build up your equity in the long term as well. A lot of people dont account for this hidden benefit when comparing rent vs sale. For the CD you will also need to pay tax on it whereas you might be able to deduct enough from the rental revenue to eliminate most of the tax (please consult with a tax advisor on what you can include in your tax return). Thera are a lot of hidden benefit with renting that are outside of the cashflow equation that you should look at when comparing rent vs sell. Good luck. 

    0Reply
  • Darian Sanayei
    Real Estate Agent · Temecula CA · Member since 2019 · 50 posts · 16 votes
    3y

    @Lucas Laria I like not paying tax on capital gains, but people who have been in real estate for a long time, the main thing I hear is they wish they never sold any properties

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    3y

    Your real return is not just 4.5%. You have to add in at least the principal pay down amount. Now lets say you sell and buy another property as an investment. You have closing costs on both the buying and selling ends. This offsets a good part of the tax benefit. Then you are giving up 30 years of 4.5% money. And replacing it by 7% (at least for now) money on an investment property. So your forward cash flows will be significantly less. Does all that make up for $30K or so of tax savings today? This is assuming you want to to continue being a landlord. If that's not the plan, just go ahead and sell now.

    0Reply
  • Ika Sargeant
    Real Estate Agent · Reston, VA · Member since 2017 · 295 posts · 163 votes
    3y

    @Lucas Laria the tax benefit makes it hard to ignore especially combined with the seller market. Without those two things I would ordinarily have been in the keep it corner. Finally I would consider the location of this home in Northern VA. There are certain locations that I would not give up on.

    0Reply
  • Brandon Wagner
    Real Estate Agent · Northern Virginia · Member since 2021 · 106 posts · 50 votes
    3y

    @Lucas Laria

    Personal opinion, keep it and rent it!  Here is why.

    1. You still get the same tax benefits if you sell in 2.75 years as you do right now.  If that's all you're wanting to sell for just sell later.

    2. Most older investors I speak with, regret selling their properties.   It's only good to sell, if you have another deal or two to park the money into.  This day  in age, that is harder and harder to find.

    3. You will learn how to be a landlord/manage property.  = Very valuable life skill

    4. There is enough cash flow there you can eat a few mistakes along the way too.  

    5. You still gain more appreciation over the next few years, tax benefits, loan paydown, rent increases, etc.

    6. Cash flow of $900 per month in NOVA is FANTASTIC! Don't lose that opportunity.

    7. Your goal is to own rental property. Keeping it aligns with your goal.

    ____________________

    LICENSED REALTOR Virginia® (#0225264736)

    1Reply
  • Jack Seiden
    Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes
    3y
    Quote from @Lucas Laria:

    Hi everyone,

    I am new to the forum but have been listening to Bigger Pockets podcast for sometime now. I am currently at a crossroads for selling or renting a single family home I own in Virginia. 

    The house is 5 years old (I bought it new) with brand new pre finished hard wood flooring I put in along with a fresh paint job. It is located in Northern Virginia and I could either rent the house at $2,800.00 per month and cash flow about $900.00 per month after accounting for monthly costs. This is about 4.5% return on equity I have in the home. The house is in a strong and developing community. 

    OR I could sell the house and walk away with about 210k in cash and avoid any tax exposure because I lived there 2 out of the last 5 years. My plan would be to earn 5% interest on the money in a CD or Bond while I look for another investment opportunity. 

    It is my only rental home and I would like to own more homes in the future but interest rates rising it also makes it difficult to purchase homes. Am I messing up by selling my one and only rental home that returns a decent cash flow rate and has a decent mortgage rate at 4.3%?


    Any pointers or guidance is appreciated 


     I’m Actually going through a very similar situation right now have a property that’s up about 120k in two years, (have nearly 200k in equity including down payment) cash flow is about $700 before repairs, it really comes down to 1. How much appreciation you think is left, in my case I decided the biggest appreciation is like behind it, and honestly and this is a personal question but your goals and overall financial picture and risk profile, in my case I felt making 120k in two years was fantastic and I’d like to take the win, I figure I’d keep my powder dry in case something else comes up, I figured I could still make a decent return in the stock/bond market. Anyway I decided to sell based on my personal risk tolerance, personal interest in being a landlord (might be a different property soon and aren’t really interested in owning more than 2-3 properties). I would say it’s a toss up in your case.

    1Reply
  • Jack Seiden
    Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes
    3y
    Quote from @Lucas Laria:

    Hi everyone,

    I am new to the forum but have been listening to Bigger Pockets podcast for sometime now. I am currently at a crossroads for selling or renting a single family home I own in Virginia. 

    The house is 5 years old (I bought it new) with brand new pre finished hard wood flooring I put in along with a fresh paint job. It is located in Northern Virginia and I could either rent the house at $2,800.00 per month and cash flow about $900.00 per month after accounting for monthly costs. This is about 4.5% return on equity I have in the home. The house is in a strong and developing community. 

    OR I could sell the house and walk away with about 210k in cash and avoid any tax exposure because I lived there 2 out of the last 5 years. My plan would be to earn 5% interest on the money in a CD or Bond while I look for another investment opportunity. 

    It is my only rental home and I would like to own more homes in the future but interest rates rising it also makes it difficult to purchase homes. Am I messing up by selling my one and only rental home that returns a decent cash flow rate and has a decent mortgage rate at 4.3%?


    Any pointers or guidance is appreciated 


     Also worth thinking about how much cap-ex may be needed going forward, in my case while all the major systems were newer, the unit in nearly 30 years old and at some point kitchen and baths would need to be updated to stay competitive on the rental market, does the house need updates, new roof, new hvac etc in the next few years?

    0Reply
  • Charles Burgess
    Member since 2019 · 23 posts · 9 votes
    3y

    Hi Lucas, thanks for sharing your current situation.  My question is: have you ran numbers for acquiring future investments in your target area?  Your current rental is doing really well, but with $210K, you could leverage those funds for multiple properties and accelerate your wealth.  But that depends on a number of moving parts: market rents, interest rates, home purchase price, your credit + income, etc.  I can deep dive more if you shoot me a DM.  I would compare your current scenario vs. an analysis of your future scenario(s) to paint a solid picture of where to go. 

    0Reply
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