Moving out of CA into TX! Should I rent out my home or sell it?

Question

We're one of the many people leaving California for good ol' Texas. We're buying a brand new home in the Austin area. Here's the decision I have to make: Do I keep my home in Anaheim, CA, and rent it out? Or do I sell it, take out the down payment / principal paid / and equity made, and use that to throw it at the down payment of the new home (plus invest it into a rental property elsewhere)?

We refinanced the Anaheim home mortgage recently, and our monthly payments with property tax come out to about $2606.00 a month. We pay $165 for our pool maintenance and landscaping. We found a potential property manager who would charge a 6% flat rate to run our home as a rental. It's possible to rent our home in the $3000 - 3200 range. If we charge $3000 a month, we would basically break even or lose money (depending on repairs). If we charge $3200 a month, we might make a $100 a month.

I need some good advice and recommendations! Thanks!

Wyatt Franta · Answer

Hey Paul,

The answer here lies within your plans in the real estate business. Anaheim has received a lot of investment dollars in A-Town, Downtown Anaheim, and into the ARTIC Metro to support the job market in & around Irvine. If you believe property values & rental prices in Anaheim will continue to rise long-term (or align with your real estate goals) because of this, and you can see yourself holding an out-of-state property, you may want to hold onto the property and rent it out.

However, if you believe the market is currently near the peak and want to consider selling the property, get a net closing sheet from a local Realtor or local title company to get an idea as to what you'll walk away with after all is said and done.

Ultimately, there is no right or wrong answer in this situation, it comes down to what will work best for you in the end.

Frank Wong · Answer

Hi Paul it depends on your goals and plan.  Would you be fine being an out of state landlord living in Austin and owning the house still?  Do you like the comfort of knowing you locked in the gains cashed out and live in TX?

Personally I like the idea of owning 2 homes in Austin and cashing out and moving forward to the next chapter in my life.  I also have zero FOMO so I could care less what the property may or may not do in the future if I sell.  Look at all sides and your GUT will tell you the best decision for you.

Kris Wong · Answer

Based on your numbers, you will certainly cash flow negative on your CA house. An "asset" that loses money on a monthly basis is not an asset - it's a liability. Unless "investing" in liabilities is your thing, I suggest you sell that house and invest into something that's going to generate a positive return for you. At the end of the day, it all comes down to the return of one investment vs. another, and where on the spectrum you prefer to be in terms of monthly cash flow vs. wealth creation.

Secondly I would say, do not just dump that money into your new primary residence. Again, that's a liability, not an asset. Equity in your home generates no return. It's completely unproductive until you pull it out and invest in something productive.

Danny Webber · Answer

If you can avoid cap gains tax then sell... that money can be better spend in many different ways in the investment world!

Easy decision for me.

Bill B. · Answer

If you lived in Texas is there any chance you would buy this property as a rental? If the answer is as I assume no, then sell. Especially before losing your 121 exemption or falling under California rental laws and the California 1031 clawback.

Aaron Flake · Answer

So would a portion of that 265k be needed for the down payment on the new house? Or have you already covered the down payment? I wouldn't put the money towards your new house. I'd put as much as possible of it towards a multifamily home investment property.

Jordan Moorhead · Answer

@Paul Kim I would sell and take the equity with you to Texas. I wouldn't want a rental that I only had a chance to make money on.

Jaspreet Baveja · Answer

@Paul Kim - I've held properties in CA before that I moved out of, and barely was break even for a couple of years, but I was in the strong belief that the market would keep going up. I was right, and was able to pull out $120k more by waiting 2 more years (tax free)! However, I didn't put that cash down towards another Primary. I rent now, and use all that equity to lend my money out to other investors for a safe and passive return. If you want to be in REI, use that $$ to invest and not dump it to take half your mortgage off. Generate cashflow... Good luck!

Jacquelyn West · Answer

I would sale the California property and apply that to the new TX home and save the rest for R/E Investing. My former neighbor moved from CA to TX bought a brand new two story home cash. No mortgage

Moving out of CA into TX! Should I rent out my home or sell it?

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