Sell or Rent?!

Member since 2020 · 2 posts · 0 votes

My husband and I would love some help/guidance. We purchased our home in McKinney, Texas (Frisco ISD) in 2022 for 350k (3.6% interest rate on mortgage). We are building a house in Missouri to move closer to family. Our total monthly payment in TX is $2300 and we could rent it for $2,200-2,350. With moving we would lose our homestead exemption and so our monthly payment would go up to $2450. If we sold we could get roughly $390,000. We are okay with playing the long appreciation game but feel that McKinney/Frisco area will see a slow down in appreciation compared to previous years. We are wondering if it was you, would you take that money and invest it into another rental that makes more financial sense or keep the house for 15 years for appreciation? Thank you so much in advance for helping!

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Amanda Polton, there's no right or wrong answer, but there are a few things that could give you some room to breathe while you decide what direction you want to take.

If you can tolerate the time it takes to meet the primary residence exclusion and have lived in the property for at least two out of the previous five years you've owned it, that would allow you to take the first $250k ($500k since you're married) tax-free when you sell. In my opinion, this is the greatest gift the IRS has ever given homeowners. And it would allow you to take $500K of profit tax-free and have access to 100% of the equity in the property, like @JD Martin is suggesting.

If you decide to rent out the property, then sell later in the future, you could still do a 1031 exchange since you would be converting the property to investment, and that would allow you to defer all of the tax and depreciation recapture and reinvest it into another investment property/properties of the same or greater value. This is another tool that allows investors to scale quickly and invest in larger real estate.

You don't have to make a decision right now. Test the waters and see if that would be a good rental before discarding it. Knowing you have some really good options

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
1y
Quote from @Amanda Polton:

My husband and I would love some help/guidance. We purchased our home in McKinney, Texas (Frisco ISD) in 2022 for 350k (3.6% interest rate on mortgage). We are building a house in Missouri to move closer to family. Our total monthly payment in TX is $2300 and we could rent it for $2,200-2,350. With moving we would lose our homestead exemption and so our monthly payment would go up to $2450. If we sold we could get roughly $390,000. We are okay with playing the long appreciation game but feel that McKinney/Frisco area will see a slow down in appreciation compared to previous years. We are wondering if it was you, would you take that money and invest it into another rental that makes more financial sense or keep the house for 15 years for appreciation? Thank you so much in advance for helping!

It sounds like a lousy rental house candidate. I would sell it. You've got 10% appreciation in 3 years, which is the rate of inflation or a little less, which means essentially you've made nothing or even lost a bit, and you are going to be perhaps $500 or more per month in the hole when you factor expenses and vacancies. You can make about $100k tax free and you are moving 600 miles away. That sounds like a no brainer to me to sell. Your house might be nice to you but doesn't sound like anything special that would have some amazing chances of appreciation outstripping the losses.

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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
1y
Quote from @Amanda Polton:

My husband and I would love some help/guidance. We purchased our home in McKinney, Texas (Frisco ISD) in 2022 for 350k (3.6% interest rate on mortgage). We are building a house
Remember also if you turn it into a rental you lose your capital gains exemption too. I was in Frisco and Prosper showing home yesterday and I think there will be a pretty big issue down the road. Too many rentals and too many rentals that just don't make sense financially. While your interest rate is good to great and perhaps that saves you, I would only keep this house if you would buy the same house today strictly as a rental. I think too many people get caught up in either being a forced investor or accidental investor. That's normally not a good place to be. Plus you will be turning this into a long distance rental that adds to the risk. I've seen plenty of rentals sitting for 90-120 days or longer vacant. Are you willing and able to do that?
Unless something unusual happens I think there is going to be some issues in this area in the future. I'm kind of guessing there were way too many people from CA and WA and maybe other East and West Coast ciities that could work from home during COVID, so they moved to Texas where they could buy a house at 1/3 the cost of their old location. Now they are back to WFO 5 days a week and forced to go live where the old jobs were. I feel a glut coming in these areas....Frisco-Prosper-Celina-McKinney type areas. After they go thru a couple of rental cycles and need solid make ready ...paint, carpet, and other items, they'll be expensive for owners to hold. If they don't fix them and that is common, then the rents start going down. Already we see $800,000 houses that rent for $4000/month. That's not good. I just rented one new one that was $650,000 for $3500/month. Tough to make money doing that. Some of these international investors have different motivations, like protecting their capital and don't care about the ROI as much if at all. They just don't want to take the money back to their countries. That is tough to compete with.
I say sell it while you are here and before you move to keep it show ready and pristine..Probably not what you wanted to hear, but my gut tells me that is the reality.
This is also perhaps a bet as to where you think interest rates will go. Everyone but the powers that be in charge seem to want them to go down. Powell doesn't seem to want to budge. If Trump gets his way and interest rates go back to 3 or 2 or 1%, market probably takes off again like crazy. However I think the other way will likely happen. If Trump privitizes Freddie and Fannie I think investors will want bigger returns and they will need to raise interest rates. If that happens then market becomes tougher and appreciation slows a LOT. If you were an investor in Freddie or Fannie what kind of return would you want? Better than 2%? Better than 3%?
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Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
1y
I would sell and look closer to my new home if I wanted to take on a rental property.
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Chris Howell
Tulsa ok · Member since 2025 · 84 posts · 60 votes
1y
Looks like you will be heavy cashflow negative on your property as a rental. If you need the tax right off every yr it might be OK. You are likely going to be loosing $500 + a month by the looks of it. I would sale and put that money to work in Missouri closer to where you will live.
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
1y
@Amanda Polton if you didn't already own it would you consider buying it now as a rental? My guess is no. So why hold on to something you wouldn't buy now?
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Sultan Ali
Wholesaler · Irvington, NJ · Member since 2025 · 112 posts · 53 votes
1y
With rent below your post-move expenses, this is an appreciation play, not a cash-flow deal. If you’d rather have stronger returns now, selling and reinvesting (maybe via 1031) could make sense. If you value the low rate and long-term upside, holding is fine — just be ready to feed it monthly.
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
1y
@Amanda Polton, there's no right or wrong answer, but there are a few things that could give you some room to breathe while you decide what direction you want to take.

If you can tolerate the time it takes to meet the primary residence exclusion and have lived in the property for at least two out of the previous five years you've owned it, that would allow you to take the first $250k ($500k since you're married) tax-free when you sell. In my opinion, this is the greatest gift the IRS has ever given homeowners. And it would allow you to take $500K of profit tax-free and have access to 100% of the equity in the property, like @JD Martin is suggesting.

If you decide to rent out the property, then sell later in the future, you could still do a 1031 exchange since you would be converting the property to investment, and that would allow you to defer all of the tax and depreciation recapture and reinvest it into another investment property/properties of the same or greater value. This is another tool that allows investors to scale quickly and invest in larger real estate.

You don't have to make a decision right now. Test the waters and see if that would be a good rental before discarding it. Knowing you have some really good options
The 1031 Investor5140 Reviews
Website View Page
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