Hey fellow BP members, Brian Williams here. I have a bit of a dilemma on my hands. I purchased a new house in 2018 for $236k using a USDA loan (no down payment). Since then, the neighborhood has increased in value due to about 100 new houses being built in the neighborhood since I made my purchase. The current market value of my house is now around $270k. I'm having trouble deciding if I should sell it and take the profits to invest in another property or should I rent it out? • * I stand to make about $30-35k if I sell now with current market conditions • * Current mortgage is $1417 per month. Would be trying to rent for $1650 (current estimate around $1695) per month. My goal is to eventually build wealth through rentals but I do need to increase my capital for other expenditures. Hence my dilemma. Any advice would be greatly appreciated. BTW this is my second "house-hack" property, still a newbie here.

Would you be making that $30-$35k after all of the expenses and fees (realtor fees, capital gain taxes if that applies to you, etc.)? Another option may be to keep the house, rent it out, and take out a loan against the equity that you have and use that money to invest in another property.

Why don't you use the equity, get a HELOC, use HELOC to buy another property? Depends how comfortable you are with leverage, but seems to check all your boxes (using equity, renting it out, and buying another property)

I would not hold this house as a rental

@Brian Williams sell it. Your capital gains are tax free. Although if you pay the typical 6 percent fee your total cash is more like 20k after everything. As a rental this sucks.

@Brian Williams This is a question that requires a lot of data to tell you one way or the other. If your area just had a boom is new houses, The area may be saturated with houses and you’ll have a hard time selling it. I personally wouldn’t rent out a house that’s financed. I only rent out homes that I own out right. If you have the Capital to pay off the Principal on the mortgage then I would consider it if the market showed a high demand for rental properties.

@Brian Williams it’s still not clear how you have much profit in this deal if you sell. If you FSBO it’s not guaranteed that you’ll achieve market rates on your sale, so I wouldn’t bank on saving half the commission. I also haven’t heard how you will achieve differentiated returns if your purchased a new property. What will be different with your new purchase that you didn’t achieve with the current? Based on the information you’ve provided, it seems that you do not have much value driver for selling.

@Brian Williams Has the house been your primary residence for 2 years? You mentioned that you bought in 2018, but if it was later in the year and you sell before you hit the 2 year mark you will owe capital gains taxes. To qualify for the capital gains exclusion, it must have been your primary residence for at least 2 years (out of the last 5 years). Also, you mentioned this was a house hack. Have you been renting out rooms and reporting depreciation on the portion of the property that is used as an investment? If this is the case, you would owe depreciation recapture taxes in addition to capital gains taxes on that portion of the sales price. I'm not an accountant, so you may want to research this more to see if and how it impact you. You mentioned that you didn't think capital gains taxes applied if you held it as a rental for over a year, but they absolutely do.

I've definitely heard that before Nasar. Thanks for the advice. I see you're in NC as well.

I would Sale & move on with my life. The reason I say that is 1 thing goes wrong with your tenant than BOOM there goes your cash flow for the year. When renting property its not if something goes wrong its when! Glad you're leaning more towards selling now.

Updated over 5 years ago on 05/15/2020. Most recent reply

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Brian WilliamsPoster

Youngsville, NC

Innovative Strategies

Should I sell or rent?

Brian WilliamsPoster

Youngsville, NC

Posted May 11, 2020 10:00

Hey fellow BP members, Brian Williams here. I have a bit of a dilemma on my hands. I purchased a new house in 2018 for $236k using a USDA loan (no down payment). Since then, the neighborhood has increased in value due to about 100 new houses being built in the neighborhood since I made my purchase. The current market value of my house is now around $270k. I'm having trouble deciding if I should sell it and take the profits to invest in another property or should I rent it out?

* I stand to make about $30-35k if I sell now with current market conditions
* Current mortgage is $1417 per month. Would be trying to rent for $1650 (current estimate around $1695) per month.

My goal is to eventually build wealth through rentals but I do need to increase my capital for other expenditures. Hence my dilemma. Any advice would be greatly appreciated. BTW this is my second "house-hack" property, still a newbie here.

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