I bought the house 5 years ago for 800K in CA with 350k downpay and then rented it out 2 years ago. I have about 1% coc return. The house is now worth about 1M. Recently I am concerned about the economy and thinking about selling the house so I don’t need to pay tax since it is still considered as my primary residence. I don’t know if it’s the right decision since I have noticed the price is dropping in the neighborhood. Would love to get your thoughts. Thank you!

HI @Aaron Cheng , and welcome to the BiggerPockets Forums!  

This isn't a simple question to answer and, spoiler alert, it's not one that someone else can definitively answer for you, but I hope we can offer some wisdom.

In general I think this comes down to your real estate investing strategy. I've heard a lot of older, wiser, and more successful investors than I say that their biggest regret was selling homes over the years.  This is because, once sold, the investor did not enjoy the 4 levers of real estate investing with that property.  In this same vein, if you look at the $150k or so that you would net from this sale and evaluate what you would do with it, hold it responsible for producing results that BEAT holding it.  As a rental you participate in debt paydown, property appreciation (CA isn't going anywhere over the longer haul . . . maybe for a minute but it seems likely that it will come roaring back), tax favor, and cashflow.

TLDR:  It depends on your goals, but most people wish they would have kept more and sold less, so I'll echo them here:  keep it and rent it.

@Will Fraser Thanks for the reply! Here is what I am thinking:

1. the rent is just enough to balance my expenses, so I can’t take out my equity to invest other properties.
2. If the economy drops, I can then buy more properties cheaper using the money I sell the current one

3. The cash flow of this house is so low, which makes me want to get a better one.

I am a newbie and don’t know if those thoughts make sense at all. Would like to get your input. Thanks!

In this case I would be more inclined to sell the property (and redeploy the capital).  First, though, I would go through every effort to make sure my rent is as high as it can be.  I'd hate to sell a property because of this limitation only to find out that I could have raised rents $450/month with a $200 update.

You're processing this well, Aaron! . .  . newbie or golden oldie; this question is a fundamentally tough one.

Originally posted by @Will Fraser :

In this case I would be more inclined to sell the property (and redeploy the capital).  First, though, I would go through every effort to make sure my rent is as high as it can be.  I'd hate to sell a property because of this limitation only to find out that I could have raised rents $450/month with a $200 update.

You're processing this well, Aaron! . .  . newbie or golden oldie; this question is a fundamentally tough one.

Thank you for your advice! I think it is really hard to raise our rent since it is already higher than most of the properties in the neighborhood. We have decided to sell the property and will buy cheaper one once the price drops.

@Aaron Cheng Depending on what part of CA you're in demand is usually high. Supply is low in SoCal for entry-level homes. With rates at an all-time low, Millenials are putting in offers more now than ever, at least in my market. 

The price point at which your home is valued may have it sit on the market a little bit longer. I would do what you said and take your profits and move on to the next home. 

@Aaron Cheng sell the property since you don’t have to pay tax and purchase 2-4 unit property, potentially multiple depending on where you are buying. I would still recommend to buy in SoCal and not OOS

Originally posted by @Twana Rasoul :

@Aaron Cheng sell the property since you don’t have to pay tax and purchase 2-4 unit property, potentially multiple depending on where you are buying. I would still recommend to buy in SoCal and not OOS

 I am thinking of buying multiple SFHs in Orlando given the coc return is high (about 7%) and hire a PM company to manage them. I would like to hear your thoughts on that. I have never done that before and there might be pitfalls I didn't realize. Any advice will be much appreciated.

Originally posted by @Aaron Cheng :

Originally posted by @Twana Rasoul:

@Aaron Cheng sell the property since you don’t have to pay tax and purchase 2-4 unit property, potentially multiple depending on where you are buying. I would still recommend to buy in SoCal and not OOS

 I am thinking of buying multiple SFHs in Orlando given the coc return is high (about 7%) and hire a PM company to manage them. I would like to hear your thoughts on that. I have never done that before and there might be pitfalls I didn't realize. Any advice will be much appreciated.

 Orlando is a great investment market. We have a constant population increase with an average of 1100 people a week moving to the area pre-covid. Feel freet o reach out to me for additional information if you want to know more about the Orlando market.