Do large houses not rent out as well?

7 Replies

I am looking at buying a house in zip code 98042 but due to the size of the house I'm having trouble finding comparable rentals. It will be my primary residence but when I move from there eventually I want to make sure it's worth it from a rental perspective to be buying the extra space. The house is 3,600 square feet, 5 bedroom 3 bath, newer condition.

While I could still rent it out for a reasonable profit at what the smaller/average sized houses are selling for, ideally I would not put more capital into a house that is necessary for the same cash flow, thus freeing up more money for down the road.

The other alternative is to rent out 2-3 of the rooms while I'm living there, due to the sheer size of the house.

Most neighborhoods that have 3600 sq ft 5 bed 3 bath homes are going to be mostly owner occupied areas. Few rentals in neighborhoods that support homes like that.

That's Kent, WA, right?  I don't see any large university close by Kent, so I don't see it being used as student housing.

Otherwise, you'd be most likely to get a large extended family in there.  I have a good friend who is Filipino, and they buy huge houses, as they have constant relatives coming and going, with multiple generations living in the home.  Their parents rented a huge house in Fairfield, CA, until my friends were able to buy one, which is always filled with tons of relatives, their kids and her mom.  

They're great long-term renters.  If you can target this type of tenant, you'd do okay.  So, you'd have to consider your tenant pool.

My thoughts would be that a family making that much monthly (at least 3X your monthly rent for such a huge house) could likely soon afford a down payment and mortgage of similar monthlies instead.

I'd buy, occupy, and show for rent up til 20 months then flip at around the 24month mark and avoid capital gains if I dont end up renting.

When  you're ready to move or sell maybe do a 1031 exchange into a multi-family unit. Just a thought. 

Originally posted by @Joyce Tavares :

When  you're ready to move or sell maybe do a 1031 exchange into a multi-family unit. Just a thought. 

 Nope - That won't work.  1031 exchanges are not allowed on your primary residence.  they are only for investment real estate.  You would actually have more advantageous oportunities from sec 121 which deals with your primary residence.  If you live in it for two years out of the previous 5 year period you could sell it and take the first 250k in profit (500K if married) tax free.  At that point in time you can make a decision to take advantage of the tax free profit and sell and buy another primary residence or some investment real estate.  Or you could convert the property to a rental and as long as you sell within three years of moving out you could still take advantage sec 121.

Your primary residence would not qualify for 1031 Exchange treatment.  It falls under Section 121 of the tax code, which is the $250,000/$500,000 tax free exclusion upon the sale of your primary residence. 

The day that you move out of your primary residence starts a three (3) year window if you still want to qualify for the 121 Exclusion.  You would still qualify for the 121 Exclusion as long as you sell (and close on the sale) of the property before the end of the three (3) year window.  The 121 Exclusion is tax free compared to the 1031 Exchange which is only tax-deferred.  And, if you gain exceeds the $250,000/$500,000 exclusion limit, you would qualify for both the 121 Exclusion and the 1031 Exchange if you rented the property for enough time after you moved out of the property. 

Yeah I'm aware of the 1031 exchange rules, not sure why they came up in this thread, it has nothing to do with the topic, which is: do large houses rent out well? 

I ended up getting a good idea of what the rent would be after much digging and decided it is not worth it. Four plex next for me I think.

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