Advice on Selling & Cashing Out or Holding?

Question

Newbie here. My primary residence is a townhome in Provo, Utah that I purchased in the fall of 2020. No investment properties yet. Our family is relocating to Vancouver, WA for my wife’s job, so we are essentially moving from one hot market to another hot market.

Property values are around the same if not slightly higher in WA compared to UT. Rents are much higher in UT. WA’s rents start out at ~$2000 for a 3/2 apartment or condo/townhome. Our 3/2.5 townhome would rent for ~$1600 in UT. PITI on the townhome is $1300/mo.

Like everyone else who owns a house, we’ve seen around ~$150K of appreciation without doing anything in the last two years.

I initially purchased the townhome with the intent to live in it for 2 years and then keep it as a rental and purchase another owner-occupied property to do the same with. Now it would not be possible to purchase another property without using equity (based on savings alone) given the current market. I am contemplating the following options below.

My question is, if you were in my place, would you:

1. Keep the townhome and rent it out long-distance by using a property manager and have a minuscule amount of cash flow, then rent in WA.

2. Keep the townhome, rent it out long-distance w/o property manager then rent in WA.

3. Sell the townhome and rent in WA. Invest the profit from the sale.

4. Sell the townhome and buy a primary residence (hopefully with an ADU or multi family if possible) to house hack in WA.

5. Other

Thanks!

Palmer Thomas · Answer

One thing to keep in mind is that if you sell your primary residence right now then you wouldn't owe taxes on the $150k profit.  If you keep it as a rental then after a couple of years you would be on the hook for any long term capital gains taxes the sale triggers.

Duane Richards · Answer

@Anson Dipnarinesingh I have some LTR's in Utah County, started investing in 2019, so like you, I hit the appreciation launch just in time. My townhomes, ranging from 1492 sq. ft to 2600 sq ft in various locations are pulling in $1700 - $2700. Our lowest are in Provo, but they are below market at this point - most comparable units are renting in the high $1800's, though I don't know how yours compares.

I have one OOS rental, but it is short-term, and I definitely use a PM for it. Not to offend anyone, but shopping for and trusting a PM is nauseating to me (like facing a used car salesman) based on my first PM experience with our OOS. We really found a gem after dropping our first one, but I've interviewed PM companies in St George, Ogden, etc. trying to find one I really feel I could trust, and have found a few good candidates, but if you're PITI leaves you only $300 margin monthly, half of that will be eaten up in PM commissions, something else to keep in mind.

I like option 4, have you looked into the market up there to see if there are any good house hack options on the market yet? The gains from your Provo unit could put you over the top on a really good multi-family for something like that!

Julie Hartman · Answer

@Anson Dipnarinesingh I would keep the townhome and pay a PM to manage it. The greater SLC area (and Provo in particular) has been on a tear for a long time. It may dip a little but with the strong job market there, I can't see the bottom falling out anytime soon. Utah is a popular landing spot for many west coast types fleeing high taxes, etc. Plus, Utah is gorgeous and it will always be a draw for people. With interest rates climbing, selling isn't so easy now. This may not be a popular opinion on this forum but as long as you are at least breaking even, I would keep it and you can always sell later down the road when intrest rates fall again. Utah's housing market has been consistently increasing for decades; just look at Park City as an example. And with many people priced out of buying, they have to live someplace so they rent. A year from now, you may be able to ratchet the rent up and start cash flowing nicely. Good luck with whatever you decide.

Taylor Woodbury · Answer

I have rental properties both here in Utah and some out of state. I would personally not find it worth holding just one property out of state. There are a lot of extra headaches that come with out-of-state investing that begin to be worth it as you have more properties and/or more cash flow. If you plan to continue buying properties in Utah, then you might consider hanging onto it.

The only thing that might change that is if you have great long-term debt on it (a low-interest rate) which you wouldn't be able to replicate in WA since rates have been rising. I'm not sure what your numbers look like, but those are a few things to weigh. I live in Provo as well and I'd be happy to run a market analysis on your Provo property as well to help you put those numbers together. Just let me know how I can help!

Steve Vaughan · Answer

I would definitely sell if my gain was tax-free, but looks like he will need to ask for a job transfer exception to the 2 year rule.  Fall of 2020 purchase = fall of 22 sale to be clean.

I read if your new job is greater than 50 miles from your old, you may qualify for an exception.  Check into that, Anson.

Not a fan of green landlords trying to make it work OOS.  Most PMs aren't very good.  I'd lean towards selling.

Ray Loveless · Answer

If you are planning on moving to WA long term I would sell the town house and buy a owner occupied 4 plex or duplex in WA so you can put the minimum down and then move to a more comfortable town house or house of your choosing.   Either way I would wait to sell the Utah property until you get your feel for Washington and see if you want to stay there long term. When you move Washington I would rent for a while to get a feel for the area before I'd buy a multi family property. Id definitely move the equity you have into another large investment property.  Good luck.

Anson Dipnarinesingh · Answer

@Steve Vaughan

I actually purchased the townhome in August 2020 and we are moving in October 2022, so we should be able to sell without incurring capital gains tax.

And are you saying that if keeping it as a rental I would pay tax for selling after three more years because of the 2-out-of-the-5 rule (unless I do a 1031)?

Michael Meyers · Answer

Biggest question is whether you plan to live/stay in Washington long term. If the answer is yes, then I would sell and look for either a house-hacking opportunity in WA or a primary residence that you can later turn into a rental (in other words, don't buy your "dream home" now).

I agree that finding a "good" property manager can be nearly impossible, and the accompanying headaches of doing so while out of state are probably not worth it unless you plan to move back to Utah in the next few years (2-3?).

Also, as already stated, you can potentially move the capital gains into your new primary residence in WA and at least delay the current taxes on that gain.

Biggest issue is how long you plan to live in WA and whether you plan to return to Utah in the near"ish" future. If WA is your new long-term plan, then sell here and start your investing there. Good luck!

Logan McKay Zylstra · Answer

I would recommend option 4. However if you won’t be in WA long, could be a good idea to keep the property and rent it out. (You could likely rent that for 1750 or 1800). Then when you move back from WA, move back into the property. As the two years doesn’t need to consecutive to avoid capital gains tax.

Bonus: Im not sure what your DTI looks like but you only need to put down 3.5% in WA using an FHA loan or 5% for a conventional loan.

Advice on Selling & Cashing Out or Holding?

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