To sell and buy another, or to rent it out?

To sell and buy another, or to rent it out?

Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes
Hey all, Need some advice on whether to sell my home or rent it out. I’m moving in out of state in 6 months, and so I have the option of renting out my house when I move or just sell it and use any money made to buy a duplex or triplex in CT. I bought my house for 0 money down (actually got back 1500 at close) using a physicians loan. I took an ARM loan with a fixed rate for the first 7 years. I paid 136,000 for it, and have about 11 thousand in equity in it. The house has appreciated to $143,000 (according to Zillow) however the same exact new construction houses on my street go for 157,000. So I may be able to sell it for closer to 150k. So I think after realtor fees I may be able to net $19k if I sell it. I have been house hacking it for the past two years and making 12k/year. Houses in my neighborhood rent for between 1,100 and 1,300/month, my mortgage is $700/month and I would have to pay a PM as well. It’s a new house built in 2014 so maintenance costs are minimal. So I could rent it out for 3 years and sell it before my interest rate rises, or I could sell it in 6 months when I move and use the money from the sale as a down payment on a duplex or triplex in Connecticut. I cannot get another 0 Money down physician loan unless I have 20% equity in my house, and I am a long way off from that right now. So i would have to use traditional financing which I’m not even sure if that can be used for a multifamily home. I also cannot use the physician loan for a rental, which kinda sucks because 0 down without PMI is a great deal. Any advice on the pros vs cons of selling my primary residence vs renting it out? Does the house depreciate more if it is a rental? Would I pay higher taxes if i sell it as a rental vs primary residence? What would ya’ll do in this situation?
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Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
8y

1031 exchanges are in regards to investment properties. You should be able to wipe the gains clean off the table tax free since it is your primary home. 

I think you're best to take the 19K and put it towards a MFR here in CT through conventional or even FHA financing. 19K will give you a good head start. I'd imagine you could net more than $600 a month if you choose wisely when you get here, and you wouldn't have to deal with having a property a few states away (some people can't stomach that, myself included).

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  • Allentown, PA · Member since 2016 · 515 posts · 404 votes
    8y

    @Heidi Kenefick

    Personally, I would sell it, find a triplex in CT and do a 1031 exchange. That way you are not paying any capital gains if you sell it for its optimum price.

    Since you can't do physician loan anymore, why not house-hack with an FHA loan?

    You can amass wealth quite quickly through the 1031 exchange, so why not use it?

  • Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes
    8y
    Hm, I thought properties which are primary properties are excluded? Can I get around that since I rented out rooms in my house?
  • Allentown, PA · Member since 2016 · 515 posts · 404 votes
    8y

    @Heidi Kenefick

    Please elaborate on your questions, trying to understand what you are trying to convey.

    1. Primary properties are excluded from what? Being sold or being bought?

    2. Get around what? Selling your current property because it already has tenants?

  • Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes
    8y
    I thought that the 1031 exchange is for investment properties only and that primary residencies are excluded from using a 1031. However since I have short term rentals in my house through Airbnb, I do not know if my house would then qualify for the 1031 exchange. Because not paying capital gains taxes on it would actually save me a lot of money.
  • Allentown, PA · Member since 2016 · 515 posts · 404 votes
    8y

    Read this article I pulled up. From what I am reading, it' possible the part of the house you use as a rental may qualify for 1031 exchange http://www.1031exchange.com/faq/

  • Property Manager · Windsor Locks, CT · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    1031 exchanges are in regards to investment properties. You should be able to wipe the gains clean off the table tax free since it is your primary home. 

    I think you're best to take the 19K and put it towards a MFR here in CT through conventional or even FHA financing. 19K will give you a good head start. I'd imagine you could net more than $600 a month if you choose wisely when you get here, and you wouldn't have to deal with having a property a few states away (some people can't stomach that, myself included).

  • Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    8y

    @Heidi Kenefick I will encourage you to go up higher to a fourplex 😬and get a 3.5% FHA deploying your proceeds from your previous house.

    I second what @Filipe Pereira said. 

    Hope this helps, Heidi. Goodluck. Thanks! - Ola 

  • Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes
    8y
    Thanks for all the replies. I think I will sell it. :)
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