Should I Sell or Rent it

Question

I have a 3 Bdrm 2 Bth home in West Hills, Ca.

Its been a rental for the past 10 years.

My tenant is moving out.

The Mortgage is 1269

The Rental Market for the home is now Around 3000 to 3500.

Property Taxes are 550 a month.

It has increased in value since purchased in 2010 by close to 275,000/300,000.

Im retiring in 5/6 years and wondering if I should

Sell now / cash out, while the market is still good use the funds to payoff my Primary residence

And reinvest in another market later.

Or Rent it out again and ride this wave of uncertainty.

Im not a very savy Real Estate Investor so I am looking for some advice. Especially from someone who is familiar with Los Angeles and the market here.

Thanks.

Dave Foster · Answer

@Bobby Thomas, that's a lot of asset that's not bringing a lot of net once you consider insurance, vacancies and cap ex along with that mortgage and taxes. A lot really depends on how much equity you have to release from that.  But regarding paying off the primary I'd feel more comfortable about doing that if you were 1-2 years out from retirement.  at 5-6 years out and in an environment of historic low interest rates with rising inflationary pressure paying off a primary may not be the best course.

That leaves you with the sell and reinvest for better cash flow and return on equity.  If you 1031 as @Kerry Baird says you'll be able to do so and not pay the tax on the $300K of profit and the fairly large depreciation recapture bill.  If you just sell you're looking at a pretty hefty tax bill probably approaching or over $100K.  Definitely worth keeping that tax at work for yourself.

Kerry Baird · Answer

Have a plan to pay the capital gains taxes.

This would be a good time to look into a 1031 exchange, where you sell one house and use an accomodator to assist in the transaction.  You would "roll the profits" into another deal or deals, and defer the taxes until a future sale, or after your death.

Nick C. · Answer

Everyone's situation is different so make sure to do what is best for you, but I would sell it and take the proceeds to invest in a more landlord friendly state, which typically has much lower prices, so you'll be able to get multiple doors.

Soh Tanaka · Answer

I don't know much about your market, but if I were you, I would do a cash-out refi (make sure you still cash-flow after you pull out the money) and use the money to buy turkey properties somewhere else NOT in California. If you consider the cash-flow and some appreciation, you would make so much more money than paying off your primary residence or leave it as is. Currently, your equity in your rental property is very "lazy" and not working hard for you.

That said, right now may or may not be the right time to pull the trigger because of, as you said, uncertainty. Personally, I am comfortable to take action, but that's just me. One option is to buy one house a year, for example, to diversify your risk. By the time you retire, you have 1+5 to 6 cash flowing semi-passive rental properties.

Should I Sell or Rent it

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