Sell primary residence or keep as rental

[Pradeep Prabakar Ravindran]

Hi forum,

I am a first time poster here and I would really love some advise on my situation. I currently own a 3Bed / 3Bath duet style home in the Bay Area. I got a job offer in the Northern Virginia area and I am planning to relocate there. I am in a conundrum on whether I should sell my home or rent it out. 

Here are some details that might be helpful

Mortgage - 2920 (2.875% interest rate), Property taxes - 1000 per month approximately, HOA - 450 per month, insurance 150 per month

The maximum rental that I can get for this property would be around 4000 per month. 

From my estimations considering vacancy rates, cost of maintenance etc - I would be at a cashflow negative of around 1300 - 1500 dollars per month. I am also assuming that I will hire a property manager.

My house has appreciated quite a bit since the time I had bought it in 2020 for 870k and right now its probably worth around 1.2million. The house is in a pretty great neighborhood with excellent schools and options to commute to most parts of the bay area and I am confident that I will be able to rent it out soon. 

The area here is pretty desirable and typically houses have appreciated around 5%. Even though the cashflow is negative now, would it make sense to hold the property for potential appreciation ? I am also nervous about my move to the DC area wont work out and I will have this house as an option in case I want to return to the bay area and will never be able purchase a similar home if I sell it.

[Gary Monroe]

Given your property's appreciation and potential rental income, it's understandable you're torn between selling or renting. However, with the projected negative cash flow and uncertainties of remote management, consider the financial strain and risks. If you're confident in the Bay Area's market and foresee returning, renting might offer long-term benefits. Yet, weigh this against potential stress and expenses. Ultimately, prioritize financial stability and future plans in your decision-making.

[Pradeep Prabakar Ravindran]

Quote from @Gary Monroe:

Given your property's appreciation and potential rental income, it's understandable you're torn between selling or renting. However, with the projected negative cash flow and uncertainties of remote management, consider the financial strain and risks. If you're confident in the Bay Area's market and foresee returning, renting might offer long-term benefits. Yet, weigh this against potential stress and expenses. Ultimately, prioritize financial stability and future plans in your decision-making.

Thank you. The negative cashflow should not be a big problem for me since I can easily fund it. I am inclining towards holding it for atleast the next 2 years to see how my move works out and keep the house incase I need to return back.

[Jack Seiden]

Quote from @Pradeep Prabakar Ravindran:

Hi forum,

I am a first time poster here and I would really love some advise on my situation. I currently own a 3Bed / 3Bath duet style home in the Bay Area. I got a job offer in the Northern Virginia area and I am planning to relocate there. I am in a conundrum on whether I should sell my home or rent it out. 

Here are some details that might be helpful

Mortgage - 2920 (2.875% interest rate), Property taxes - 1000 per month approximately, HOA - 450 per month, insurance 150 per month

The maximum rental that I can get for this property would be around 4000 per month. 

From my estimations considering vacancy rates, cost of maintenance etc - I would be at a cashflow negative of around 1300 - 1500 dollars per month. I am also assuming that I will hire a property manager.

My house has appreciated quite a bit since the time I had bought it in 2020 for 870k and right now its probably worth around 1.2million. The house is in a pretty great neighborhood with excellent schools and options to commute to most parts of the bay area and I am confident that I will be able to rent it out soon. 

The area here is pretty desirable and typically houses have appreciated around 5%. Even though the cashflow is negative now, would it make sense to hold the property for potential appreciation ? I am also nervous about my move to the DC area wont work out and I will have this house as an option in case I want to return to the bay area and will never be able purchase a similar home if I sell it.

I honestly think the answer to the 1st question should in large part be dictated by the last question, how likely are you to move back to the Bay Area?

[Mike Hourihan]

@Pradeep Prabakar Ravindran I hope you don't mind cold weather. it's in the 30s right now here in Maryland

[Hari Bansha Dulal]

keep it. With the interest rate you have and appreciation you are getting, you will make a ton of money in the long run. 

Quote from @Pradeep Prabakar Ravindran:

Hi forum,

I am a first time poster here and I would really love some advise on my situation. I currently own a 3Bed / 3Bath duet style home in the Bay Area. I got a job offer in the Northern Virginia area and I am planning to relocate there. I am in a conundrum on whether I should sell my home or rent it out. 

Here are some details that might be helpful

Mortgage - 2920 (2.875% interest rate), Property taxes - 1000 per month approximately, HOA - 450 per month, insurance 150 per month

The maximum rental that I can get for this property would be around 4000 per month. 

From my estimations considering vacancy rates, cost of maintenance etc - I would be at a cashflow negative of around 1300 - 1500 dollars per month. I am also assuming that I will hire a property manager.

My house has appreciated quite a bit since the time I had bought it in 2020 for 870k and right now its probably worth around 1.2million. The house is in a pretty great neighborhood with excellent schools and options to commute to most parts of the bay area and I am confident that I will be able to rent it out soon. 

The area here is pretty desirable and typically houses have appreciated around 5%. Even though the cashflow is negative now, would it make sense to hold the property for potential appreciation ? I am also nervous about my move to the DC area wont work out and I will have this house as an option in case I want to return to the bay area and will never be able purchase a similar home if I sell it.

[Russell Brazil]

Bay area home I'd keep til retirement. That baby is going to fund a decade of your retirement.

[Arlen Chou]

@Pradeep Prabakar Ravindran Assuming you have lived in the house for at least 3 years, you have several years to take advantage of the capital gains exclusion. Coupled with the fact that you believe there might be a chance you will need to come back to the Bay Area and that the slight negative cash flow is not an issue for you, you should just hold on to the property. Even if you decide the East Coast is the place for you, as @Russell Brazil has stated, the appreciation of the property of the long run should continue you to build wealth for you.

[Brandon Wagner]

I'm all for keeping real estate whenever it's possible. You mentioned above you could easily fund the extra 1500 or so a month in negative cashflow.   That's about 18,000 per year.   Comparatively if you get 5% appreciation on a property that is worth about 1.2M that is 60,000 per year on paper.  Factor in some tax benefits and loan paydown, I think it is starting to look easier to decide.  Try to take the emotion and risk out of it, and think about the numbers.   

It ultimately boils down to are you okay with losing say 20K a year in cashflow to make 60K+ a year in appreciation?

One thing to make sure you factor in is the cost of your new home in the DMV area.  Run some quick numbers on that to get a feel for your new monthly payment.  DC is actually relatively cheaper cost of living than the Bay area so that is promising too.  Can you still afford to lose $1500 per month with another rent/mortgage payment too?

[Cassidy Burns]

Keep it! You've already done the hard part.  Unless you are going to liquidate and put that capital into a better asset, keep it! 

I always wish I would have started buying more trophy assets when I was younger. Especially ones near the beach (for retirement) 

[Basit Siddiqi]

Real Estate investments generate a return in one of two ways - Cash flow and Appreciation.

It appears that the investment is cash-flow negative.
How much is the property anticipated to appreciate over the next few years?

What is your required rate of return?

if the return on cash-flow and appreciation is less than your required rate of return, you should consider selling it.

Selling it now could also allow you to escape some or all of the capital gain through 121 exclusion.