Should I sell my primary residence at $500k profit?

Question

Hi all. I bought our primary 4 bedroom residence in 2020 for $930k and it has increased in value to $1.43m (woo hoo!). Now that the value has increased $500k, any additional increase will be taxable income when I do sell. I am planning to begin investing in multifamily rental properties in 2025, so I'm considering if I should take out an equity line of credit to finance my first investment (my current plan), or sell my home given the $500k value increase and do a house hacking multifamily residence to jump start building wealth through real estate investment. We love our home which has a $2,400/month mortgage and we rent the furnished MIL downstairs for $1,600/month, so I plan to do the equity line of credit and continue living in this home. How much thought should I put into the selling my home to avoid the future taxes from growth compared to staying in my home another 20-30 years?

Travis Boyd · Answer

Thanks for your thoughts. I'm paying $2,400/month and getting back $1,600, so only paying $800/month. The wife and kids would prefer to stay. :) I'll likely do the HELOC and not worry about the extra taxes on gains over $500k when I finally do sell someday.

Allan C. · Answer

@Jay Hinrichs I think were saying the same thing. If OP has $1M appreciation he’ll have $500k excluded and $500k obligated, which will end up as $100k cap gains payment. He’ll lose more than $100k pursuing his alternative.

Allan C. · Answer

@Travis Boyd you’ll lose more in interest rate increases, potential property taxes increases, realtor commission and other transaction costs than you’ll pay on any future cap gain taxes. If your primary has a net $1M appreciation you’ll only pay $100k cap gains tax - that’s a lower alternative than what you propose.

Focus on keeping your family happy and find another means of funding your investment. Your current plan seems like a lot of sacrifice for limited gain.

Jonathan Greene · Answer

If your payment is $2,400/month on a $1.43m value, you should not sell it right now to then buy into a much higher rate. Also, does everyone in your household want to sell this and move to a multifamily? Are you paying $2,400 and getting back $1,600 so only paying $800/month or the $2,400 is your net payment after the MIL rent?

I don't love taking HELOCS to burn, but if you have 500k in equity, you can safely use up to 250k to buy another property and probably get one that cash flows well by not living there.

Obed Calixte · Answer

Based on what you shared, your current residence is already a great jump start to building wealth. Safely leverage the equity and find a separate investment property.

If you havent already, run scenarios with your lender to get an idea of upfront & monthly costs for getting a heloc vs selling and then purchasing a MF as a primary.

Chris Seveney · Answer

@Travis Boyd

You must have put down a pretty good down payment for only a $2400 payment

If anything I would get a line of credit versus selling as you are also gonna lose the rate on your home and who cares if you are paying taxes over $500k is the way I look at it. I would rather pay potential taxes at some future date than lose a loan at 3%.

Should I sell my primary residence at $500k profit?

Should I sell my primary residence at $500k profit?

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