Sell or Rent? (Self-Manage or PM?), 4 year-old Primary Residence to Rental Property

[Duke Butterfield]

My wife and I purchased a home in Scottsdale, AZ in 2018 - $325k loan, 4.875 rate. We moved out of state in 2021 and have been renting ever since (long term, current tenant 3yrs @ $2,850). We had maybe $200k in equity when we moved, but home values were still skyrocketing and didn't seem like it was a peak yet. So we decided to rent it because we didn't need capital in new location and we could immediately see positive cash flow. There was also a chance we moved back. 

We now face a cross-roads of sorts. We are very much in the Growth phase of our financial journey but also have other irons in the fire. We value the passive income of renting, but is the opportunity cost vs other passive assets too high? Is holding a rental asset like this long term a smart financial decision? Hold a couple more years? Hold forever? What factors should we be weighing? Will the Scottsdale SFH market continue to stagnate or boom again (or dip further)? Can we transition to truly passive (use a PM) and still have this be financiallu beneficial or are we likely going to see better ROI if we sell and invest in something truly passive like financial assets?

More details and thoughts:

Sell option - We no longer have any intention to move back. Home value has appreciated substantially: peaked (~$720k in 2022), slumped, and now stagnating or growing slowly (~$680k). I did not know about the 2 of 5 years rule for capital gains and that ship has unfortunately sailed. We still don't need the capital, but may for primary home down payment in in the future (after the next relocation!).

Continue Renting options (self-manage or PM) - Our initial experience has been smooth, but of course not perfect. We are starting to get a clearer picture of the benefits and burdens of having an investment property, but we are still very new to this. So far, we have averaged roughly $800/month cash flow after all self-manage costs. Current tenants are amazing. We have a bit of a word-of-mouth network of tenants (residency/fellowship physician community), which is how we got the first two. We might have another reliable tenant already lined up. On whether to hire a PM - we are starting to get nervous managing OOS as we look beyond our current tenants - it can't always be this smooth. I am also not sure my self-management is efficient -  could a PM do better for me? Reading here about the variance in PM quality, finding a good one seems like it is perhaps the most important factor in the PM decision. That seems difficult/risky.

Other options? - E.g. "like-kind" nearby / in-state seems to come up a lot in these forums. Unfortunately, don't think this would be feasible in our current area (prices WAY higher, as are rates these days).

Lastly, you may run our numbers and say we should never have rented in the first place, but we did. You may say we should have sold before 3 years to avoid capital gains, but we did not. What else are we overlooking? How should we be thinking about this now?

Thank you!