Rent or Sell

[Eric Cozby]

Hello BP Community,

I currently own my primary home in Cape Coral and I am considering either selling or renting the property.   I bought the house before it was built, it was finished and closed in March 2022, and I have lived here since then.  It has appreciated considerably from the purchase price.

Monthly rent is estimated to be around $2000 per month, and after running the numbers through the BP Rental calculator, this will give me approx. $200 per month cash flow.  However, the city will be expanding utilities into this area in the near future, and will be assessing each property approx $35K to be paid over 30 years at 6% interest

Or I can sell it.  Purchased at $202K, current market value is roughly $300K.

Thoughts?   I appreciate the input.

[Corey Morrison]

This is just off the top of my head so bear with me if I’m missing a lot. 

Whether to something or not is usually based on the math for me. But….

If you sell:

Capital gains or 1031 (?)

Correct me if I’m wrong but…If it’s been your primary residence for 2 of the last 5 years, then no capital gains ($250k single or $500k married). Doesn’t seem like you’ve hit that 2 year threshold just yet.

If you keep it:

If you keep it and need to pull money out, maybe a HELOC or these HE-loan would work if they're a better option than doing a refi right now. ?

Renting it:

I’d be interested to know where it is. I’ve been seeing rents higher than $2000 for condos. 

OR

What if you lease optioned it? There’s monthly rent for a few years while someone builds credit to qualify for buying it. 

What flood designation is it in?

[Adam Bartomeo]

We should probably talk... You are in the NE which is the lease desirable but $300k is definitely low. Without even knowing anymore about the property I wouldn't list it below $330k but probably $350k+, and depending on the attributes it could be a lot more.

The rent is probably a little low. I should be able to get $2200 - $2400 for a rental. Once the assessments hit the taxes will go way up.

There are too many questions (interest rate, your future plans, attributes of the home) to know if you should sell or rent but I would lean towards rent. If the property will cash flow after the assessments go in then I would suggest renting but if it will not cash flow than sell.

[Nathan Gesner]

Quote from @Eric Cozby:

It cash flows $200 a month, or $2,400 a year. That shoudl easily cover your utility assessment.

Keep in mind rents will continue to rise each year. In ten years, that same house may be renting for $3,500 and you'll cash flow almost $20,000 a year. In 30 years it will be paid off, rents will be $8,000 a month, and you'll be cash flowing $80,000+ a year.

I recommend holding on to all real estate. The only time you should sell is if the property is a loser that you can't afford to keep, or if you are selling it to invest the money in something that will perform better.

[Peter Davis]

@Eric Cozby

I agree with much of the above: I'm selling newer construction Cape Coral homes in the higher $300's and rents are closer to $2,300. However, I am seeing rents flatten out so I wouldn't assume they'll continue to climb in the near term. Good luck!

[Stetson Miller]

@Eric Cozby The advise above is great and I definitely agree with all that's been said. One thing I would add to that too though is that we typically see the value of the property improve once the city utilities are connected, less any outstanding balances to be paid. Although no one likes seeing those assessment balances, keep in mind that is something that's still beneficial for the property and for you as the owner as well

[Eric Cozby]

Thanks for all the great insights. For reference, it's a SFH, 3/2 with 1550 sq. feet in NE Cape.

@Corey Morrison
Hadn't really considered a lease option. Can that work with a mortgage on the property? It's not in a flood zone, from the new FEMA maps I can't see a designation for it.

I would be subject to capital gains since I've only lived in it 15 out of the 24 months.

@Adam Bartomeo
Would be great to discuss some possibilities.  I would be more inclined to rent if I was confident I could cover the costs plus assessment with future rent growth.  I think the $2200-2400 range would cover it.