So I'm looking to take a job that comes with a pretty kush relocation package. I'm torn on the idea of selling my house or holding it for a rental and appreciation in equity. Curious what this forum thinks.

Details below.

The House

1. - I live in Austin, TX. A hot market. Home purchased 2016 for $545k w/ 20% down. Mortgage=$3k/mo, $386k remaining @ 3.25% (includes property taxes and property insurance.), also no HOA.
2. - the home is in the NW austin area....Cedar park/Balcones/RoundRock/Leander area... Big plans for upcoming developments (Domain North) and employers (Apple Campus).
3. - The home is a 4br/2ba with a great yard, 1/3 acre, in an all 10/10 school district (BVS) (elem, mid, high), backing up to a golf course, so it feels like a bigger space.
4. - Zillow estimates currently @ $650k.

The Relo:

1. - pays sellers closing costs, including the full 6% realtor fees if I sell my house.
2. - pays the buyers closing costs, up to 2.5% if I buy a house at new location.
3. - I have up to 1 year to utilize the benefits, so I could totally rent out my place and then sell next year.

So any input here? Capturing that 6% sellers fee seems HUGE, but I'm worried that if I ever do move back to this neighborhood, I would be priced out and unable to buy in. I think I could rent out my house pretty easily in the $3k/mo range. How do I help make this decision?

side note: the new location is Boise, so another hot RE market.

When you're not there, how will you manage it? 

It won't cash flow (rent = mortgage payment, no money left over for repairs & management), so it's going to cost you money every month to own this property. Is that a headache you're ready for?

We are headed into a recession which may or may not impact real estate values. If anything, people are going to be looking for more affordable housing over the next couple years. Plus, the first $250k of gains or $500k of gains are tax exempt (restrictions apply, verify this for yourself) but only if you lived in the property for 2 of the last 5 years. That's an awesome benefit as well.

If you take the gain and invest it elsewhere, will you earn a better return than the appreciation on the house, factoring your sweet benefit package, minus a year's holding costs? Probably. We know for a fact it'll lose money every month based on the numbers you provided (unless the rent is massively underestimated). We do not know if the value will keep going up. 

We also know that unemployment is at unprecedented levels, mortgage delinquencies are way up, and small businesses are closing left and right. The conditions are ripe for falling real estate values. Not good if you're hoping the price goes up and are already cash flow negative.

I would sell while the getting's good and start looking for a better home for that money. There are many options for you that will be much less of a hassle than managing a tenant or property manager that loses you money every month.

Congratulations on the awesome job deal, that's fantastic.

@Adam L. I don't see how that will cashflow? What's the PITI per month?

@Adam L. sorry I see that now. I know people who have kept properties like that. Maybe try and rent for $3500-4000 and see if you get it?

Originally posted by @Jordan Moorhead :

@Adam L. I don't see how that will cashflow? What's the PITI per month?

Originally posted by @Taylor L.:

It won't cash flow (rent = mortgage payment, no money left over for repairs & management), so it's going to cost you money every month to own this property. Is that a headache you're ready for?

All, agreed. I think this will be quite hard to cashflow positive...neutral at best.I'm think I'm more trying to weigh the intangible and emotional values....what if I move back to Austin and now I'm priced out of the neighborhood we love. Rental comps are hard to figure out, there's not much to find and most of the neighborhood is homeowners. I think there is a lot of value and potential to find a long term family rental, as it's in the #1 school district and a strong family/community vibe.

Originally posted by @Taylor L. :

When you're not there, how will you manage it? 

It won't cash flow (rent = mortgage payment, no money left over for repairs & management), so it's going to cost you money every month to own this property. Is that a headache you're ready for?

We are headed into a recession which may or may not impact real estate values. If anything, people are going to be looking for more affordable housing over the next couple years. Plus, the first $250k of gains or $500k of gains are tax exempt (restrictions apply, verify this for yourself) but only if you lived in the property for 2 of the last 5 years. That's an awesome benefit as well.

If you take the gain and invest it elsewhere, will you earn a better return than the appreciation on the house, factoring your sweet benefit package, minus a year's holding costs? Probably. We know for a fact it'll lose money every month based on the numbers you provided (unless the rent is massively underestimated). We do not know if the value will keep going up. 

We also know that unemployment is at unprecedented levels, mortgage delinquencies are way up, and small businesses are closing left and right. The conditions are ripe for falling real estate values. Not good if you're hoping the price goes up and are already cash flow negative.

I would sell while the getting's good and start looking for a better home for that money. There are many options for you that will be much less of a hassle than managing a tenant or property manager that loses you money every month.

Congratulations on the awesome job deal, that's fantastic.

thank you for the advice! man, I am a low-information decision maker here, as in I don't make this decision very often and its quite hard to assess.

I think it depends on how long you will be gone and if you plan to move back. If you aren't sure about the new job or only plan to be there a few years and move back, I'd rent it.  Once you are there, if you like Boise, you can always list the home within that first year.

@Adam L. if this was purely an investment ROI decision to be made, by all means sell as it would come off as a thin deal in terms of cashflow, but I hear you place another type of ROI, the emotional type....to you this is much more than just a financial ROI decision. Sit down with yourself, ask: whats the best thing which can happen if I sell and whats the best thing which can happen if I don't sell, whats the worst thing which can happen if I sell and whats the worst thing which can happen if I don't sell.....decide from there

@Adam L. I’ve relocated 5 times over the last 10 years, and have always sold my primary. Sometimes I’ve sold right away and other times I’ve sold within 2 years of moving out. The benefit of capital gains tax exclusion on your primary residence is an advantage often unparalleled - you don’t want to lose it.

It’s often easier dealing with a sale while you are local, but the timing of the sale is up to you to decide.

If you’re concerned about buying back into an appreciating market, don’t forget about all the reno benefits you’ll receive when you come back, so that may defray some of the higher re-entry costs. You’ll also have the benefit of investing your sale proceeds so hopefully that will provide additional capital if needed to buy back into that market.

Originally posted by @Adam L. :

Originally posted by @Taylor L.:

When you're not there, how will you manage it? 

It won't cash flow (rent = mortgage payment, no money left over for repairs & management), so it's going to cost you money every month to own this property. Is that a headache you're ready for?

We are headed into a recession which may or may not impact real estate values. If anything, people are going to be looking for more affordable housing over the next couple years. Plus, the first $250k of gains or $500k of gains are tax exempt (restrictions apply, verify this for yourself) but only if you lived in the property for 2 of the last 5 years. That's an awesome benefit as well.

If you take the gain and invest it elsewhere, will you earn a better return than the appreciation on the house, factoring your sweet benefit package, minus a year's holding costs? Probably. We know for a fact it'll lose money every month based on the numbers you provided (unless the rent is massively underestimated). We do not know if the value will keep going up. 

We also know that unemployment is at unprecedented levels, mortgage delinquencies are way up, and small businesses are closing left and right. The conditions are ripe for falling real estate values. Not good if you're hoping the price goes up and are already cash flow negative.

I would sell while the getting's good and start looking for a better home for that money. There are many options for you that will be much less of a hassle than managing a tenant or property manager that loses you money every month.

Congratulations on the awesome job deal, that's fantastic.

thank you for the advice! man, I am a low-information decision maker here, as in I don't make this decision very often and its quite hard to assess.

 

You're getting such an enormous benefit from the company covering all of those costs, plus the capital gains exclusion (if you qualify). You have to get some killer returns to make up for those in the short term.

The only way you're priced out of this neighborhood later is if you take these gains and blow them. Or if this neighborhood's appreciation exceeds anything else you could invest the capital in. Consider where the overall market is right now. It seems very unlikely that any neighborhood will considerably appreciate within the next few years.

Take the gains and turn them into more gains! Then you have more money to buy a house with in the future. 

We just moved to Boise in a similar situation—we sold our primary and have a year to familiarize ourselves with boise before missing out on closing cost assistance through work. My one word of caution is that it is pretty awful to be a renter in Boise. It is at least $300-400 more a month to live in a completely gross rental. We do have pets, which def makes it harder, but If you plan to rent here, expect to pay out the nose or live in a complete dump. Another thing we’ve found interesting is the large gap between income and housing expense here. Don’t quote me, but I think the average income is something like $48,000 annually, which is way too little to afford the vast majority of homes. I know people who make $35000 a year and live in homes that have appreciated to the &400,000 range. We had planned to buy right around when corona hit. Prices are still going up here for the time being, so we’re ready to stop trying to time the market, stop being renters, and just buy something we can afford. Congrats on the move to Boise! We absolutely love it here!

I would sell on a few conditions. 1) If you will be gone 5+ years - cap gains tax is a big deal coupled that with the paid Realtor fees and it is a no-brainer. 2) You plan on investing in Boise - if you are just taking the money and not investing in another hot market like Boise then you probably will be priced out as Austin is only going up. So if either of those is not the case then keep and rent out and even though it may not cash flow, your ROI will be very nice when you return.

@Adam L. Sell. Tenants are hard on a house and you’ll be a long way away and busy. Plus, you can never be priced out of Texas. Land out the wazoo and cheap labor. You may be priced out of your neighborhood but it may not be the same neighborhood when you return. And you may just as soon live elsewhere in the Austin area. They are promising a new “Domain” in both RR and Cedar Park and even if that turns out to be an overstatement, you may end up in Nashville.

@Adam L. Sell it! If the rent is 3k on a 545k value, that is a .55 rent to value ratio. You can sell and invest in places with a rent to value ratio of .8-1%, with much lower taxes, that will cash flow nicely.

@Adam L. Can you buy in Boise without selling in Austin? If you can thats what I would do. You may be cash flow neutral but you are paying down the mortgage. Plus gaining appreciation. Austin A class neighborhood will likely hold its value well. And you should be able to get good tenants that preserve the property. Look at the long term picture.

@Adam L. it seems like most people are forgetting about appreciation. Your home gained approximately 100k in 4 years. I don’t know if that’s something cashflow would have gotten you. David Greene uses this example all the time and more recently so on recent podcasts.

I believe Austin is one of the hottest markets.

Can you afford to pay for the Austin residence?

My parents bought their house back in 2002 in Sunnyvale, CA (next to San Jose/Bay Area) for 500k, now it’s listed on Zillow for 1.7mil and houses go for over asking here. They can comfortably retire now. What made it go up like crazy was the development of the new Apple HQ, their house is 1 block away. That news made my Parents property double. Not bragging but my belief is Jobs = rising prices. So if there really is development (and I know Austin is like “HQ2” for Apple) I like the idea of holding for the long run. IF YOU CAN ADDORD IT. No need to struggle.

You found your way to BP so I would hope your interested in becoming an investor. If you hold onto it, you can 1031 later. It might get messy timing wise with your relocation bonus but something for you to weigh.

I recently moved across the country from CA > PA and not that I don’t like my neighborhood, but my fiancé would have wanted something different. Do you know the exact neighborhood where you’d want to relocate too? Have you visited before? These are somethings renting can figure out for you. Just some food for thought :)

depends on equity, your long term plans, the RE market, rental comps, age of home, cash flow, avoiding capital gains?  

and much more

Originally posted by @Steven Ko :

@Adam L it seems like most people are forgetting about appreciation. Your home gained approximately 100k in 4 years. I don’t know if that’s something cashflow would have gotten you. David Greene uses this example all the time and more recently so on recent podcasts.

I believe Austin is one of the hottest markets.

Can you afford to pay for the Austin residence?

My parents bought their house back in 2002 in Sunnyvale, CA (next to San Jose/Bay Area) for 500k, now it’s listed on Zillow for 1.7mil and houses go for over asking here. They can comfortably retire now. What made it go up like crazy was the development of the new Apple HQ, their house is 1 block away. That news made my Parents property double. Not bragging but my belief is Jobs = rising prices. So if there really is development (and I know Austin is like “HQ2” for Apple) I like the idea of holding for the long run. IF YOU CAN ADDORD IT. No need to struggle.

You found your way to BP so I would hope your interested in becoming an investor. If you hold onto it, you can 1031 later. It might get messy timing wise with your relocation bonus but something for you to weigh.

I recently moved across the country from CA > PA and not that I don’t like my neighborhood, but my fiancé would have wanted something different. Do you know the exact neighborhood where you’d want to relocate too? Have you visited before? These are somethings renting can figure out for you. Just some food for thought :)

Great points. 

So is $100k over 4 years good for appreciation on a SFH? How does this stack up? It seems my neighborhood is definitely not a 'rental' neighborhood.

Yes, I believe we could afford down payment on new house in Boise without selling here in Austin: significant cash stockpile plus my access to various sources of credit (insurance vehicles, 401k/IRA loans, HELOC, etc).

Can we direct message more about 1031? 

Yes, it seems that there will be development here over next 10 years. Apple just did a huge deal to place a new campus less than 2 miles from here, as well as a shiny new outdoor mall/living complex nearby too.

Originally posted by @Anish Tolia :

@Adam L Can you buy in Boise without selling in Austin? If you can thats what I would do. You may be cash flow neutral but you are paying down the mortgage. Plus gaining appreciation. Austin A class neighborhood will likely hold its value well. And you should be able to get good tenants that preserve the property. Look at the long term picture.

 This is what I'm thinking too. We've put out feelers to see about renters and we've found several people like:

• - "we're adding a 2nd story to our home [in the neighborhood] and need a place to stay for 8-12 mos
• - "my sister wants to spend the summer away from SF and is looking for a furnished house nearby"
• - "I'm going through a divorce and looking for a lease that allows me to stay nearby to the kids"

Originally posted by @Sara Liskey :

@Adam L Sell it! If the rent is 3k on a 545k value, that is a .55 rent to value ratio. You can sell and invest in places with a rent to value ratio of .8-1%, with much lower taxes, that will cash flow nicely.

 I agree here too. Its definitely not a good 'rental' or 'investment' property in terms of cash flow....but there's the appreciation and equity and emotional factors to consider. It's a tough call.

People seem to be more focused on cash flow but missing the appreciation piece you get in a market like Austin.i have moved in and out of the SF Bay Area over the years and did not sell any one of my properties. Some of them were cash flow neutral but appreciating double digits. Austin is a high growth market and odds are when you come back, prices have increased and the 650k home is worth 750k. I would keep that home and go back to your company and negotiate that relocation amount and see if they could pay those to you in cash.

@Adam L. unfortunately I don’t know much about 1031. Still new to investing. I just hear Brandon turner talk about it lol. I am investing in D/C Neighborhoods so I know I’ll be 1031 exchanging into more C/B neighborhoods later on. But it sounds like you’re already in a B/A neighborhood :p.

I also don’t know if 100k in 4 years is a lot or not but it’s also a zestimate. I don’t know your market well enough to say.

@Steven Ko You can't 1031 a personal residence but you do get the homestead exclusion, definitely talk to a tax advisor

@Adam L.

Having reloed under similar circumstances, I would not keep it.

Would you BUY this house to use it explicitly as a rental? If no, then don't keep it. Use the relo benefit to get out, take your appreciation already earned, and scoot it into other deals that make more sense.

Equity and appreciation don't pay the bills. Cash flow keeps you afloat when the tides go out, and you'll resent the place if you aren't making money on it but dealing with the headache of managing remotely or through a PM (and I say this as an investor with 3 remote properties).

Take the benefit and sell, in my opinion.