What would you do? Sell or Rent?

Question

Curious to hear what you would do between renting or selling in my situation.

Here are the details:

I have a residential home in Nashville TN built in 2014 and great location. For tax purposes this would appear as my primary residence and avoid any type of capital gains tax.

If I rented it, I would clear $1400 a month after paying P&I, property tax and insurance (so not factoring in expenses but it’s a newer property). If I sold it I’d clear about 200k.

What do you think BP’ers? What would you do?

Anna Sagatelova · Answer

@Adam Philpot I think that it depends on what you would do with the $200k if you sold. But you probably won't be mad in 5-10 years if you do end up holding on to a 2014 Nashville property...

Devan Mcclish · Answer

@Adam Philpot Just quick math, It would take 12 years to get that amount of money in rent pre tax. Pre tax, your ROE is 8.4%, which is not bad, but that will go down year over year. Personally I would probably sell and take the equity and move on but either option seems to be a fine option for you

Moises R Cosme · Answer

I would take some of the equity out of the property in the form of a HELOC.  If you have that much equity you should be able to tap it & do a flip.  Taking this option allows you to: (1) keep a highly profitable asset, (2) use the equity as a line of credit, that way you are not paying interest until you find a good investment and (3) take advantage of the opportunities in the market.

I hope this helps!!  I realize that I did not choose one of the options you presented, but my response is based on what I would do given the situation you describe in your post.

Brian G. · Answer

@Adam Philpot it depends on if/how badly you want to keep the property longterm. The 121 tax exclusion on the gain of a primary residence is pretty sweet. You have 3 years after moving out of a primary to sell and make $250k profit as a single person ($500k if married) and not pay any taxes (provided you lived there at least 2 years; consult a tax pro). In addition, if you clear $1,000/mo profit it would take you almost 17 years to make $200k (this is for simplicity; there are tax implications, appreciation potential and rent appreciation factors of course). If you can get a big tax free gain based on the 121 exclusion, I would give serious consideration to taking some chips off the table to redeploy into other investments before the 3 year window elapses, whenever that is. Of course if you love that property and want to own it 10 years from now you can access the equity without selling: primarily via a cash-out refi or Heloc.

John Teachout · Answer

I'd probably sell it, take the profit and invest some of it into a couple other cheaper properties. Without laying out a lot of data on the table and looking over different scenarios, tax implications, etc, it's really hard to give a valid suggestion. But anytime you have a chance to put tax free cash in your pocket, you should consider doing it.

Adam Philpot · Answer

@John Teachout good question. I essentially put 50k into the deal in 2014 (20% down payment) and would profit after paying my mortgage off of 200k (150k once you subtract out my initial investment). No tax since right now this would be considered my primary residence. What do you think?

John Teachout · Answer

In your original post, it's a little unclear as to your actual investment in the property. If you "clear" $200k, how much of that is "profit" and how much is getting back money you paid into the property? That will likely help make a decision whether to sell or hold. ie, how much of the money would be taxable if not for the 121 exclusion?

Adam Philpot · Answer

@Devan Mcclish thanks Devin! Great to hear that

Adam Philpot · Answer

@Brian Gerlach thanks this is great feedback and food for thought. What makes it especially hard to hang on to is an insurance claim from a small faucet leak essentially got us new cabinets, new interior paint, and new flooring for free. To boot we painted the exterior about 3 months ago.

I guess my only real reservation about keeping it is tenants damaging all this and having to fix the interior again before selling. You make some great points so thanks for your thoughts.

What would you do? Sell or Rent?

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