Should I sell or should I rent?

Question

Alright, so I am in a pickle. I currently live in Eagle River, Alaska which is a part of Anchorage. Much like other places, rent is crazy, and houses are near impossible to find for buyers. I am currently in the process of building a 4-plex and had initially planned to rent my current house out for a couple of years. The house would rent for about $2,400. My mortgage is $1711. My neighbors house that is 1br less just pended for 370k. I currently owe about 245k on my house and it would pend near the same to the neighbors. Do I keep it and put all the profits towards the mortgage with the goal to sell in 5 years hopefully adding around 100k in equity+profit of selling, or do I sell now and make the 110k or so after closing costs. I’m fairly new into the investing game and 110k would definitely jump start me short term for saving for another 4plex. Thank you!

Jamie Rose · Answer

@Brandon Stack -

I would consider what your opportunity costs are - if you sell and clear the 110k now - what can you use it for the earn a return, and do you like that option better than what you have going on now? If you can clear about $700 a month now ($8400 annually) - can you do better than that in your estimation? If you can build or buy a 4plex with it - that seems like it should have a better return... I'd be interested to learn from you about your 4plex build - and your situation - sounds interesting! Is the new build 4plex also in ER?

Slavik Lund · Answer

Without anymore detail I vote keep it.

Collect the cash flow. Reduce the taxes.

No need to sell it before you are ready to make a move on your next investment. Cash sitting in your bank account will get eaten by the rats.

Keeping it an appreciating asset is the move.

Andrew Frowiss · Answer

Hi @Brandon Stack it all depends on your future real estate goals long term. These are just my thoughts, but you could 1031 your equity into a downpayment on a larger property. Hold onto it for a few years and rinse and repeat. Years down the road if you aren't liking the cash flow you are getting you can 1031 your funds into a different market out of state with a Property Manager in a place with higher cash flow, lower appreciation, and purchase prices.

Anyway I wish you the best of luck in your future endeavors!

Jaik Webster · Answer

I second what my colleague @Jamie Rose shared!!

Dave Foster · Answer

@Brandon Stack You have a great opportunity right now to maximize your returns on your home. You called it your house so I assume that it would be your primary residence, and if so, you would qualify for the primary residence exemption (250k of profit tax free if you're single, 500k if you're married). You just have to have lived in it for at least two out of the previous five years. This means that you could rent it out for the next three years, let it appreciate some more, and then claim the primary residence tax exemption when you sell!

Keenan Fitzpatrick · Answer

@Brandon Stack

Keep it for now. Sell it when you’re ready to use it on your next  4plex.

You projected the rent on your home so it sounds like you’re living in your house, right? Then you’re going to finish your 4plex and move in there so you can rent out your home so you get the best interest rate, yeah?

If you’re moving from a SFH to a 4 plex it can be tricky and you may not be able to do that depending on a few conditions. Assuming you can then I wouldn’t sell your house till you need the money. You’re building a 4plex now so you know it takes a while and you only need Notice To Proceed funds to start. So you could hold your house till you finish your first building then rent it and cashflow til you get close to the finish of your second building and need the funds. This will get you more cashflow, more debt pay down, more tax benefits and ultimately more money out of the sale.

Theresa Harris · Answer

Find out what the tax laws are for how much time you have from when you turn it into a rental and when you sell for capital gains to kick in.  Does your mortgage include property taxes and would the rent include all of the utilities?

Should I sell or should I rent?

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