Sell one house with a pool to buy 2 without?

Question

I just purchased my 2nd SFR property in 5 months.  Got great deal on both of them.  Now I have to figure out what to do with my primary residence (I need to move into my latest purchase to satisfy the VA loan).

My current primary residence will sell quick for $165K.  I estimate $80K in pocket after all is said and done.   I can rent the same house for $1400 / month  minus $1100 all in expenses.  Cash flow = $300 a month.  I would have the home paid for in less than 6 years.  Problem is this house has a large in-ground pool.

If I sell this house I will have 2 down payments and decent reserves to purchase additional investment SFR.  If i dont sell it I will have a cash flowing rental (with the hassels of a pool) that will be paid for in short order.  The sale also costs me +/- $10K in expenses = lost money.   I can gather cash for a down-payment on a 4th property if I keep the pool home, but this will push me out of buyers market for 5 months.  My goal is 4 homes as quickly as possible!

I would appreciate guidance on owning a rental with a pool in Central Florida. is it worth the hassle?

Dave Foster · Answer

@Adrian Smude, 1031's aren't that expensive. Ball park a normal one of a sale less than 1 million at around $700 - $1000. That compares very well with the 16 - 25K of tax plus depreciation recapture on a profit of 80K .

The real question is can you find good replacements that fit your parameters within the time constraints.

Bill Exeter · Answer

Hi @Chris Gerbig

Have you lived in the property as your primary residence for at least two (2) years?  If you have, then you qualify for the 121 Exclusion (Section 121 of the Internal Revenue Code).  The 121 Exclusion allows you to exclude up to $250,000 in capital gain if you are single and $500,000 in capital gain if you are married from your taxable income.  You have a three (3) year window from the date that you moved out during which you will still qualify for the tax-free exclusion under Section 121.  Tax-free is a power opportunity.

If you do not qualify for the 121 Exclusion, you can certainly sell and structure a 1031 Exchange so that you can defer the payment of you taxable gain by reinvesting in two (2) or more other replacement properties.  The 1031 Exchange is a great way to diversify your investment portfolio.

John Kent · Answer

If this has been his primary residence for the past 2 years then he can take the capital gains exemption without the complication and cost of the 1031 Exchange.

I personally am not a fan of rental homes with pools.

Adrian Smude · Answer

@Dave Foster thanks for the $$ info on 1031 exchange and great point for him to think about.

Adrian Smude · Answer

@Chris Gerbig I have a rental with a pool and I think about selling it mainly because of the pool, but I haven't yet.  You should look into doing a 1031 exchange.  I've never done one so I don't know if the 80k is enough profit to justify the fees.

Patty Cox · Answer

I am interested in hearing more opinions on this subject as I to am trying to decide if I should sell or rent out my pool home in Central Florida.  The prices of the homes in my neighborhood are going up fast So I don't want to sell to fast but for reasons I don't want to get into, I may have to move into a 242nd home I own which is in a non rental community.

Chris Gerbig · Answer

@Patrick L.

Thank you for insight.  I am struggling with the idea of selling one solid home to buy 2 unknows.  The pool may just be a distraction.  The $30/month cash flow includes pool service and i am in in the area to manage the property.

The home values in this B+ class area have gone up 40% in the past year.   Not sure If I will see that appreciation in any other area that I am shopping.  Not sure i will get half that on 2 homes.  Soo many variables make the decisions a tough one.

A realestate mentor of mine told me that "many people smarter than us choose to not rent out homes with pools, why should we not listen".  Sounds like solid advice.  Wondering if maybee I am a "special case"  = DUMB

Patrick L. · Answer

I prefer no pools in rentals.   There's a lot to break with pools and you really need to pay for a monthly pool service for both cleaning and chemicals to keep the tenant from destroying your pool.   I had one rental with a pool and I only bought it because I got a great deal on it back in 2008.  I sold it in 2015 at a great profit and reinvested that cash in 3 class C properties and tripled the cash flow I was getting on the one class B rental.

Sell one house with a pool to buy 2 without?

Most Popular Reply