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Keep it & rent.
Rent!
Coach
Sell! $6k a year profit on equity of $237k is a 2.5% return. Plus maybe a few % of appreciation. In total you could get the same return in a safe high rated bond. Which conveniently comes with zero hassle factor. I’m selling a paid off rental right now because the price has gone up more than the rents and the ROE is only 3.2%. And PS I’m betting you aren’t accounting enough for things like vacancy and the paint/carpet touch ups needed between each tenant and the $8k-$12k hvac that needs replacing every decade or so (that’s an average of $1k a year potentially expense just to allocate for that), same with a roof, same with light reno every 5-7 years to keep it nice and stylish enough to get top dollar and so on and so forth. There is also the cost of your time or of a management company. I have many rentals and it can be great but it can also be a huge time suck and one random expense can wipe out a year or more of cash flow. Just sell and invest your money. Rentals need to have a LOT better ROI/ROE to be worth the trouble.
Also note that if you have a homestead exemption now that your property taxes will rise when you convert it to a rental and can no longer take it. Could be 10% or more hike depending on your local rules.
Coach
True, I rented out my old condo for 2 years after moving in with my husband but sold it before the gain would be taxed. Property managers are great - my net cash flow went up when I finally hired one to manage my units (mainly because of their pricing power so repairs and maintenance costs went way down). But they do need to be managed. And they don’t do anything related to insurance claims or tax contesting or if you have to evict. You have to hire a lawyer or do that part yourself.
Rent it.
Subject Expert
Assume you’re in a high appreciation market? How has rent growth been the last 12 months? What would you do with the money if you cashed out?
$6k per year isn’t exciting, but if that turns into $8k in 2 years and $10k in 3 years through rent appreciation, that’s more interesting.
Also, if $237k profit might turn into $300k profit in 2 or 3 years, that’s worth riding out. You might pay LT capital gains on the final $50k profit, but that’s still a huge benefit.
Now, if you have an opportunity to get 10% fixed return over the same period of time, then I’d sell tomorrow!
Subject Expert
Signing a lease severely limits your ability to sell the property during that lease duration. You really need to decide now how to move forward. If you don’t want to be a landlord, that’s part of the decision too.
10% return opportunities are out there if you know where to look. But they tie your capital up for 12 to 36 months. Even if you invested that money into market index funds, there’s a good chance that you would be up more in 3 to 5 years than you would if you held on to the house for that same period of time.
Your desire to be a landlord, your risk tolerance (in the case of a market based investment), or lack of potential better uses of the cash are all things you need to weigh. Personally, if I believed in rent growth and appreciation, I’d hold on to the property. But I also am very comfortable being a landlord.
Coach
Keep it holy moly it’s not even a question with todays rates
Calculate your rental return on investment, not the equity stored in the home. Pull the equity out of the house and buy a second rental with it and calculate your return on investment (your actual cash invested) on the second house. Then calculate the blended rate of return. I assume you will do well.
How are you able to qualify for a capital gains tax exclusion? (assuming you are selling at less than 2 yrs since purchase..)
The rule is it has to have been your primary for at least 2 out of the last 5 years
When I was in similar situation last year, I was worried to rent it out for couple years and sell because the tenants may spoil kitchen and an bathrooms might get older, I my not get Same sell price down the line without upgrading them. My kitchen was 10years old but in good condition don’t know what tenants does and what if the sale price less than what it is today
Never sell a property, rent it
I have a slightly lower rate on my home now and we’re buying a new primary home so we’re keeping it. We have a few properties already and use avail.co to manage EVERYTHING. i suggest you keep it especially if you’re moving to an area close by. Once you screen the potential tenants very well, they will absolutely care for your home.
Sell. I did this and bought 2 rentals. If it’s a FHA or VA, sell it as “subject to” to get a higher sales price
For those of you saying to keep it - to what end? Just keep renting it out until it's paid off?
Subject Expert
Your homestead exemption applies if you lived there in 2 of the last 5 years. If you can rent it for ~2.5 years and sell in the following 6 months, you can gain from the cashflow and the appreciation without any penalty.
If appreciation skyrockets, the gains will outweigh the taxes. Remember, long term cap gains is ONLY 15%. If you see $30k in appreciation in a year, owing 15% cap gains means you pay the government $4.5k and keep $25.5k in profit. That’s way cooler than the $6k in cashflow from rent!