Should I sell or rent my primary after I move?

Question

Hi BP!

I'm in the process of looking for a MFH to house hack. I've been house hacking a SFH for the last 2-1/2 years. I didn't know much about REI and thought it was my "starter home." Now that I want out, the numbers don't work out well as a pure rental. I won't lose money, but once you add in reserves for maintenance, vacancy, and capex, the rent I need to cash flow is pretty high above market.

I just refinanced a few months ago to free up my eligibility for an FHA loan, and the appraisal came back about $18k over my loan on it. I know I want to sell, I just don't know if I should hold onto it for a year, rent it out, and clean it up a bit, or sell it as-is. I will probably reach out to the agent who sold me the house to get her opinion. Are there any other considerations I should take into account as I make this decision?

TIA!

Matt Leber · Answer

@Nicole Heasley it may not be a bad property to keep if you can breakeven and are in a hot area with growth potential.  Rents could rise over time to improve the property’s outlook and tenant pool.  However, if is not at least breakeven, your money can earn better returns elsewhere. Perhaps you can 1031 exchange into the multi family you are looking for. That will delay the taxes on the capital gains and allow you to plug your money into a better performing investment.

Dave Foster · Answer

@Nicole Heasley sell and take the 121 exemption.  @Matt Leber brings up some really good points.  But you won't need to do a 1031.  So you can take the cash tax free.  The question is when to sell.  If there's MF around that you can get into with your tax free dollars that would generate a better return and if your house is slowing down appreciation wise then run don't walk to get that thing sold.  Cause it sounds like you're probably going to go negative if you hold as strictly a rental for any period of time.  So there's no reason to hang on to it except for appreciation.

OTOH if there's no multi to be found then you could rent it out for a total of three more years and still get the 121 tax free exemption.

Theresa Harris · Answer

Talking to your realtor is a good idea.  Mention what renos you want to do and what return you'd get on those.  Something like painting is inexpensive and you can do it yourself.  As for holding onto it for a year vs selling it now, that really depends on what your local market is like.

Should I sell or rent my primary after I move?

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