How to evaluate? Sell or rent SFH? [Single Family Home]

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vints
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Joined: Wed Mar 03, 2021 12:59 pm

How to evaluate? Sell or rent SFH? [Single Family Home]

Post by vints »

This is my first post here! I've been a long time reader/lurker and value the advice I see being given here. Hope the community can help me think through this.

Wife and I own a 3bd/2ba SFH in the bay area. We're both 35+ yr old professionals.

The property was our previous home, is paid off, and so is the home we now live in. Wife inherited some money so we were fortunate enough to be able to pay off both properties. However, given the path I've taken in life and for various other reasons, we're not sitting on cash savings (I've had business losses).

We are now debating if we should sell off aforementioned property or put it up for rent. The housing market is hot right now in the property zipcode and we're hoping to net 300K cash after realtor fees etc. It'll be nice to have access to some cash that we can invest, stash away as emergency fund, and front-load kids' 529s. We also moved out of this property less than a year ago, so selling it now will make us eligible for the capital gains tax exemption. We may not be able to get this if we sell 4+ years from now.

However, another part of me wonders if we should rent it (~ 3.5K/mo), get some cashflow (~ 1.8K after prop taxes + income taxes), and wait another 5-7 yrs to sell with the hope that market appreciates it much higher in this timeframe. Of course, I'm assuming the housing market is going to continue to rise the way it has been in the past few years. I have my doubts about that.

I'd love to hear what your thoughts/opinions are. What am I missing in how I'm thinking about this? Please enlighten me. I'm not the most savvy investor, and in the past, haven't always been very shrewd about saving up for the future.

Why I'd want to sell -- access to a reasonable sum of cash that I can invest
Why I'd want to rent -- save up cash flow and hope that property appreciates much more to offset (capital gains + opportunity cost of net cash from selling earlier)
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retired@50
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Re: How to evaluate? Sell or rent SFH?

Post by retired@50 »

vints wrote: Wed Mar 03, 2021 1:16 pm We're both 35+ yr old professionals.
Welcome to the forum. :happy

Do you think you'll have time in your schedule for being a landlord?

Finding and screening tenants, including credit checks, calling references, etc.
Making minor repairs when possible, or interviewing and selecting contractors for major repairs.
Dealing with the inevitable poor workmanship, and/or call-backs for problems not actually solved the first time.
Dealing with fussy tenants who want things that are outside the rental / lease agreement.
The list goes on...

My vote is for simplicity. Sell the house, invest the proceeds.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
brian91480
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Re: How to evaluate? Sell or rent SFH?

Post by brian91480 »

vints wrote: Wed Mar 03, 2021 1:16 pm This is my first post here! I've been a long time reader/lurker and value the advice I see being given here. Hope the community can help me think through this.

Wife and I own a 3bd/2ba SFH in the bay area. We're both 35+ yr old professionals.

The property was our previous home, is paid off, and so is the home we now live in. Wife inherited some money so we were fortunate enough to be able to pay off both properties. However, given the path I've taken in life and for various other reasons, we're not sitting on cash savings (I've had business losses).

We are now debating if we should sell off aforementioned property or put it up for rent. The housing market is hot right now in the property zipcode and we're hoping to net 300K cash after realtor fees etc. It'll be nice to have access to some cash that we can invest, stash away as emergency fund, and front-load kids' 529s. We also moved out of this property less than a year ago, so selling it now will make us eligible for the capital gains tax exemption. We may not be able to get this if we sell 4+ years from now.

However, another part of me wonders if we should rent it (~ 3.5K/mo), get some cashflow (~ 1.8K after prop taxes + income taxes), and wait another 5-7 yrs to sell with the hope that market appreciates it much higher in this timeframe. Of course, I'm assuming the housing market is going to continue to rise the way it has been in the past few years. I have my doubts about that.

I'd love to hear what your thoughts/opinions are. What am I missing in how I'm thinking about this? Please enlighten me. I'm not the most savvy investor, and in the past, haven't always been very shrewd about saving up for the future.

Why I'd want to sell -- access to a reasonable sum of cash that I can invest
Why I'd want to rent -- save up cash flow and hope that property appreciates much more to offset (capital gains + opportunity cost of net cash from selling earlier)
I was in a similar situation a few years ago. I opted to rent the house out, and not sell.

So far the decision has been fabulous. The property value has appreciated significantly... all rent has been paid on time... no drama or big expenses.... good cash flow.

I'm not saying you should do this. But often times on this forum, in general, people focus on what can go wrong. Sometimes... things go right.

I thought property values would appreciate when I made my decision. And they did.

You think yours may not appreciate... that might be your decision right there.
Topic Author
vints
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Re: How to evaluate? Sell or rent SFH?

Post by vints »

retired@50 wrote: Wed Mar 03, 2021 6:27 pm
vints wrote: Wed Mar 03, 2021 1:16 pm We're both 35+ yr old professionals.
Welcome to the forum. :happy

Do you think you'll have time in your schedule for being a landlord?

Finding and screening tenants, including credit checks, calling references, etc.
Making minor repairs when possible, or interviewing and selecting contractors for major repairs.
Dealing with the inevitable poor workmanship, and/or call-backs for problems not actually solved the first time.
Dealing with fussy tenants who want things that are outside the rental / lease agreement.
The list goes on...

My vote is for simplicity. Sell the house, invest the proceeds.

Regards,
If we rent, we’d definitely use an agency (roughly $100/mo) to manage it but I get your point. Things can go wrong, there can be lean periods between tenants, or worse, bigger expenses.
Topic Author
vints
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Re: How to evaluate? Sell or rent SFH?

Post by vints »

brian91480 wrote: Wed Mar 03, 2021 6:41 pm
vints wrote: Wed Mar 03, 2021 1:16 pm This is my first post here! I've been a long time reader/lurker and value the advice I see being given here. Hope the community can help me think through this.

Wife and I own a 3bd/2ba SFH in the bay area. We're both 35+ yr old professionals.

The property was our previous home, is paid off, and so is the home we now live in. Wife inherited some money so we were fortunate enough to be able to pay off both properties. However, given the path I've taken in life and for various other reasons, we're not sitting on cash savings (I've had business losses).

We are now debating if we should sell off aforementioned property or put it up for rent. The housing market is hot right now in the property zipcode and we're hoping to net 300K cash after realtor fees etc. It'll be nice to have access to some cash that we can invest, stash away as emergency fund, and front-load kids' 529s. We also moved out of this property less than a year ago, so selling it now will make us eligible for the capital gains tax exemption. We may not be able to get this if we sell 4+ years from now.

However, another part of me wonders if we should rent it (~ 3.5K/mo), get some cashflow (~ 1.8K after prop taxes + income taxes), and wait another 5-7 yrs to sell with the hope that market appreciates it much higher in this timeframe. Of course, I'm assuming the housing market is going to continue to rise the way it has been in the past few years. I have my doubts about that.

I'd love to hear what your thoughts/opinions are. What am I missing in how I'm thinking about this? Please enlighten me. I'm not the most savvy investor, and in the past, haven't always been very shrewd about saving up for the future.

Why I'd want to sell -- access to a reasonable sum of cash that I can invest
Why I'd want to rent -- save up cash flow and hope that property appreciates much more to offset (capital gains + opportunity cost of net cash from selling earlier)
I was in a similar situation a few years ago. I opted to rent the house out, and not sell.

So far the decision has been fabulous. The property value has appreciated significantly... all rent has been paid on time... no drama or big expenses.... good cash flow.

I'm not saying you should do this. But often times on this forum, in general, people focus on what can go wrong. Sometimes... things go right.

I thought property values would appreciate when I made my decision. And they did.

You think yours may not appreciate... that might be your decision right there.
The part I struggle with is how much it might appreciate. This is of course impossible to predict. If it appreciates 100K in 5 yrs (optimistic), we’d have an additional 100k + ~100K from rent. Is that worth the capital gains we’ll be hit with when we sell it for 1M 5 yrs down the line? This is what I’m trying to answer.
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Re: How to evaluate? Sell or rent SFH?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (real estate). I retitled the thread to help with the acronym.
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Watty
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Re: How to evaluate? Sell or rent SFH? [Single Family Home]

Post by Watty »

vints wrote: Wed Mar 03, 2021 1:16 pm We also moved out of this property less than a year ago, so selling it now will make us eligible for the capital gains tax exemption. We may not be able to get this if we sell 4+ years from now.
That makes deciding to sell it an easy choice.

It also sounds like you have a high percentage of your net worth in the two single family homes so that could be a diversification problem.

By the price I would assume that the prior home is not in the Bay Area so you would be dealing with being a long distance landlord. Even with a property management company that makes it a lot more difficult.

Most housing markets are real strong right now so it will likely be easy to sell the house. If you hold on to it for a few years then change your mind and decide to sell it then you could be trying to sell it in a bad housing market and in addition to hurting the price it may take six months or more to sell unless you drop the price to a distressed price sale.
Lexx
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Re: How to evaluate? Sell or rent SFH? [Single Family Home]

Post by Lexx »

As someone who used to be in residential real estate in the SF Bay Area, I say get out while you can! Use your homeowner exemption and take the profit tax free!!!

Being a residential landlord in SF Bay Area means having an attorney on call every so often. The laws in the area are totally biased towards tenants. If you're a landlord in SF itself good luck. The first thing every time my attorney asked me when I called was "Is this a San Francisco property?"

Take your profit and run. Be happy with it.
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Re: How to evaluate? Sell or rent SFH? [Single Family Home]

Post by enclee »

Sell and take your 300k and invest that into a property you bought to cash flow. If you wait your 5-7 years, you miss the capital gains window.

Also, you’re not getting a management company for 100/month as they usually charge 10% gross rent.

I faced the same situation with a duplex that I owned for 2 years, when I relocated to another state. I had just fixed my unit and was planning to move the tenant out in the other to fix it up for ~15k. Management companies wanted 10% of rents collected and 50% of the first month of rent. Building was from the 1940’s,but those buildings need constant preventive maintenance which would eat any profits.

I opted to sell and take my ~90k and be worry free.
Carefreeap
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Re: How to evaluate? Sell or rent SFH? [Single Family Home]

Post by Carefreeap »

Lexx wrote: Wed Mar 03, 2021 7:47 pm As someone who used to be in residential real estate in the SF Bay Area, I say get out while you can! Use your homeowner exemption and take the profit tax free!!!

Being a residential landlord in SF Bay Area means having an attorney on call every so often. The laws in the area are totally biased towards tenants. If you're a landlord in SF itself good luck. The first thing every time my attorney asked me when I called was "Is this a San Francisco property?"

Take your profit and run. Be happy with it.
I agree (mostly) with Lexx on this. I did rent out my Bay Area house when we moved away for nine years. We moved back to the area after DH retired. It mostly worked out for us although after nine years of having the same tenants we had to start eviction proceedings. Terribly sad way to end a relationship.

If I were in your shoes unless you think you might move back to this property I would probably sell to lock in the exemption and to diversify your portfolio. One thing I've noticed with people who own their own businesses is that they really need to take fewer risks with their investments and stay a little cash heavy. This is a hard thing for people who are generally risk takers. On the other hand not optimizing every investment means less family drama and better sleep.

Good luck with your decision.
Every day I can hike is a good day.
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