Should I sell or rent my house.

Question

I currently own my home in California and purchased our first rental property in Alabama a couple of months ago.

We are planning on leaving California in July of 2024 as the cost of leaving here is getting crazy and moving to Charlotte, North Carolina. We have a long-term goal of investing in real estate to set up our retirement.

We were able to buy our house on the down market in 2010, we owe about 310k at 3.8% and could sell it for the low 800k.

My dilemma is should I sell or rent my house in California

Renting will give us a $800 to $1000 cash flow, but California being a tenant state worries me.

But on the other hand, selling will give us way more freedom and buying power, and it will accelerate our plan like crazy but I want to make sure I’m not missing something and making a mistake.

The current plan is to sell the house here in California makes a 400/450k profit which should not be taxable as we are married and have lived in the house for the past 13 years. Move and rent in Charlotte for 6 months to see and analyze the market and the area. Once there, accelerate the machine, buy another 1 or 2 investment properties in the next year and a house where we will live for a year or two to renovate, then rent it and buy another one.

Do you think the plan is appropriate or do you think I should reconsider keeping the house and renting it?

Evans Wright · Answer

@Gregory Saysset, I do not think anyone on here will be able to influence your decision since it sounds like you have made up your mind. What I will do is help you understand different options you might have available to you.

Keeping the asset

1. Cash out refinance - Most banks will give you up to 75% LTV. Assuming $800k valuation minus what you owe, that will give you about $290k ish cash in your pocket. Your interest rate will go up to current market rate but you will still have a property. Plus additional tax benefits such as depreciation, etc. The thing to answer, after refi at currents rates and taking max LTV loan, will you be cash flowing anymore after operating expenses, PM, etc? Maybe, maybe not.

2. Home Equity Line of Credit - You can find a bank that will give you up to 90% LTV which will give you a HELOC of about $410k ish. Current loan remains the same and you get a credit card for the equity to buy properties. Higher interest on HELOC but still get benefits previously mentioned of owning a property. You would 100% want to have a plan in place on how to pay back the HELOC ASAP and execute it.

Even if you continue to rent the Cali property and sell down the line, depending on how long you wait to sell, you may be faced with capital gains situation but you can do a 1031 exchange at that point.

Selling the asset

1. Sell the property, reap the benefits, and move to CLT. I would not recommend waiting and renting for six months to assess the market as we do not know where the market will be in six months. Right now inventory is slowly creeping back up as many buyers sit on the sidelines due to high interest rates which means less competition but also increasing home prices. Rates keep going up but due to limited supply our average price still keeps creeping up. If rates come down even half a point, buyers come out of the wood works and it's multiple offer scenario. Heck depending on what area you buy in you will still face that challenge now.

Point I am trying to make is that you should connect with a local experts and understand the market now as you move to prep your house to get ready to be listed. With the strong macro factors like population migration to Charlotte, it will be hard to lose in the long run with whatever investment you buy. All in all just keep yourself informed and buy what works for you and your long term goals.

Happy to help answer any questions you may have about the area. :-)

Carlos Ptriawan · Answer

This is very easy to answer. 300% Sell.

Travis Biziorek · Answer

Hey Gregory, I feel you man! Let me chime in here with some advice from someone that did EXACTLY what you're doing.

We moved from Walnut Creek (SF Bay Area) to Metro Detroit in 2017 because of cost of living. My wife wanted to be full-time with our children and my salary wasn't going to cut it.

We sold our townhome and for $765k, clearing about $150k, and bought a big ol' SFH on a large lot in Troy, MI for $462k.

We had some money to play with but not a ton, so we spent the next 18 months remodeling our house to force some equity. Then we tapped a HELOC and began going nuts buying Detroit rentals.

We did that for 2.5 years, spent another year paying down the HELOC and then... we moved back to California (Central Coast this time).

So here are my thoughts...

1) You may find that you do not like North Carolina and wish to move back. The grass is always greener, you know...

And what then? Will you wish you'd kept your current primary?

2) Consider buying a more modest house. We purchased a 3,100 sq ft home (which does NOT include the additional 1,000+ sq ft basement) on a .45 acre lot. It was nice and all, but it's a lot of house... too much. I now enjoy our smaller 1,700 sq ft home in AG.

3) If you think any of #1 might ring true, consider keeping your existing home and pulling a HELOC before you make the move. This would give you some cash to play with while retaining optionality here in CA.

4) You can ALWAYS sell. And you have 5 years to do it while still capturing that those tax-free gains.

TL;DR here is you may regret moving. Selling now would free up more capital but might shoot you in the foot as well. You're in a great position and you can always access that equity via a HELOC.

Overall, I LOVE the idea of moving to your target investment market and building a portfolio quickly. I have ZERO regrets that we did that.

But I may have done it differently knowing what I know now.

Oh, and that townhome we sold is now worth $1.1MM... so there's that too.

Laura Shinkle · Answer

The only thing I would say is maybe take a look around at the Charlotte market and see if that's where you'd like to be as an investor. Right now, with the interest rates the way they are and the market still strong, it's impossible to cash flow a long term rental unless you're putting 35%-45% down. I don't think there's a wrong answer, I would just want to make sure you do research before you do it to make sure you're not assuming certain things and then are disappointed when you look to buy an investment property here in CLT.

I don't think investing out of state is a bad idea. I have no idea what tenant laws are in CA, so I can't speak to that. But is the equity in the home best utilized there or elsewhere? That would be the question I would ask myself.

Gregory Saysset · Answer

Thanks, this is really the way I look at it and our plan for the next 10 years, thanks.

Theresa Harris · Answer

You are moving across the country and from the sounds of it have no plans on returning.  I'd sell especially with how tenant friendly CA is.  Your house has likely gone up in value a lot over the years and if you do long term rental and sell down the road, you will have to pay capital gains on that.

Travis Biziorek · Answer

Eh, the old townhome actually hit the $1.0MM mark pre-COVID. It did not benefit much from the COVID area because, well... it's a townhome and people were generally looking for more space.

I agree it's unlikely that townhome is worth $1.5MM in a few years from now. My point was that the CA market tends to be a strong appreciation play. It's hard to regret holding CA real estate if you can manage to keep it.

Gregory Saysset · Answer

Thank you all for your knowledge and tips, like some of you have mention I might start looking at buying before moving there, as I have plenty of time to study the area before moving

Gregory Saysset · Answer

Yes I have look at adding an ADU as that was the original plan, but numbers were not making sense, average was 250k to 270K (from 6 companies) for a 2 br not including the solar require in CAL for new construction. A company made me a market analyses, and between the loan for the new ADU and what I could rent it for, I would barely brake even.

Should I sell or rent my house.

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