Should I sell or rent?

Question

I have a home at the beach and I was trying to short term rent it and have not been having a good experience. The market seems far more saturated now for STR, and all the renters have been partying and over occupying the home. I have had to get cops involved twice and the ring doorbell showed what looked to be drug deals going on all night during the last occupancy. I know my neighbors as I lived there 10 years and I don't want to do this to them.

My question is, the home is paid off and in a desirable area. I could rent it for $3,000 a month or put it up for sale. A few months ago I think I would have gotten $600,000 but now after the last rate hike I am worried about selling it. I think I would get (hopefully) $550,000 but I am worried it may sit or I get low ball offers with everything going on. I don't "need" the money right now so should I sell or hold? If I sold, I would put half towards my current principle and the rest on stand by for future deals. If I hold, I would just the cash flow for monthly expenses. Thank you and look forward to your feedback!

Kevin Sobilo · Answer

@Justin R McCullers, If you occupied the home as a primary residence 2 of the previous 5 years you have an exemption to a certain amount of income tax if you sell. If you qualify for that, you may want to sell to avoid a larger tax bill selling later on.https://www.irs.gov/taxtopics/...

Melanie Thomas · Answer

My advice, hold it and rent it! Good luck and happy investing!

Todd Goedeke · Answer

@Justin R McCullers NNN lease the property to a Property Management company willing to pay you 10% of market value or ( 550k x 10%= $55k/yr). With a cash out refi of 50% that will give you a much better ConC return than a long term rental.You may have to 1031 to a different property if your current property does not support a high enough nightly STVR rate for a Property Management firm to lease it from you for 55k.

John McKee · Answer

Have you considered looking at a long term rental option with a more stable tenant? An example would be a family or a working professional that could rent it for a couple of years.The other thing you should consider is selling via a 1031 exchange. Since your property has a LOT of equity in it why not trade up to a more passive asset such as a NNN property or buy a few smaller properties. This may have less cashflow in the short run, but more equity in the mid/long term run. Just depends on your current cash needs.Here is what the math tells you: Let's assume your net cash flow after expenses and taxes is $2,500 a month or $30K a year. Your equity in the house is $550,000. This means your return on equity is 5.4%. If your a retired investor you might be happy with that, but if you want to continue to grow your wealth then maybe you should continue to leverage that equity.

Michael Evans · Answer

Do not use booking.com! It does not screen the guests before booking. Screening is critical to a successful STR. You need to have strict "house rules" posted on your listing and also inside the property with a maximum number of guests, no parties, no visitors and no noise. Get a refundable $1k deposit. I would also impose a minimum age of 30. Violators need to be evicted immediately. Either yourself or a property manager needs to be on call 24/7 which a lot of Cities require now. Have cameras installed to monitor the exterior and be sure to disclose them in the listing.Good Luck!

Jason V. · Answer

They're referring to Section 121 capital gains tax exemption if you have lived there 2 out of the past 5 years. If you have, then you're exempt up to $250k if you file single or married filing separately. Or you're exempt $500k of gain if you're married. I hope you lived there 2 of the last 5 years *and* you're married, because that's $500k tax exempt dollars you're talking about. That's what *I* would do, at least.

Casey CJ Noble · Answer

Hi Justin - since your home is in a good location of Jax Beach, I'd probably hold onto it as a long term rental to maintain monthly cash flow, as well as let the long term wealth building continue to stack as those types of highly sought after beach properties continue to see increased appreciation and demand over time.However, I also caveat that with the suggestion to access some of that equity doing a cash out refi and put into more deals. Even though interest rates are higher than the last few years, I'm seeing great opportunity around Jax to plant some new investment seeds and I think the equity in your beach home could be a great source to scale up some additional investment properties. Feel free to reach out if you'd like to connect and discuss further!

Justin R McCullers · Answer

Thank you Kevin!

Drew Sygit · Answer

@Justin R McCullers this question always has the same answer - where could you invest the money for a better rate of return, with acceptable risk, than renting it out?

Justin R McCullers · Answer

This is really good info Michael Evans. I wish I knew that knowledge of Booking.com beforehand. I love all the info you have of $1,000 deposit and impose an age of 30. We had the maximum number of guests, no parties, etc... in place with cameras set up. But the people staying used a fraudulent credit card and possibly had a police scanner because when we called the cops everyone left. They came back after the cops left. They never answered their phones when we texted.If I did it again, I would completely avoid booking.com and make sure I spoke directly to the tenant before they checked in.