House too nice for rental?

[Gary B.]

My primary residence is a 3/2/2 that's 1300 SQFT built in 1996. It's located in a neighborhood in OKC that was hit hard by the May 20th tornado. The house 4 houses down was bulldozed. 90% of the houses in the 7 blocks south of me are gone.

The neighborhood has gone down hill the past 5+ years with a lot more rental properties and lack of pride of ownership. Maybe the new houses being rebuilt will help that, but now we'll have an "old" and "new" part of the neighborhood.

Over the past 2 years I've completely remodeled my house. It's got hardwood floors throughout, new doors, lighting, baseboards, updated kitchen, appliances, new garage door, etc... Based on the properties I've seen in the neighborhood, it's well above and beyond the norm. It's also my first home, so I have an emotional tie to it.

My question is, would it be a mistake to convert this house into a rental? I'm thinking the hardwood floors would be ruined in no time.

Would it be better to sell this house and buy two good rental properties. One I'd rent immediately and one I'd live in for a few years and then convert to a rental.

I have around $40K equity in the house with around $80K cash available.

If selling is the way to go, do I try to sell immediately or do I wait a year or so and get some of the newer houses rebuilt to bring up the sell price per square foot?

[Steve Babiak]

Originally posted by Cosntant Change:

That is an idea. I could do a 1031 exchange on a bigger house that needs updating. Live in it while I'm rehabbing and flip it.

Your primary residence is not eligible for 1031 exchange. And it isn't worth the bother or the expense in your case because your projected capital gains will be less than the Section 121 exclusion.