Should I sell now or in 2 years?

Question

About a year ago I moved out of my primary residence and began renting it, which means I have 2 more years to sell and avoid capital gains taxes.  The house is in Old East Dallas, about 100 years old, in a non-protected neighborhood zoned for multifamily where most houses have already been torn down to build townhomes and luxury duplexes.  That being said, I won't get a return on any upgrades I put into it, and soon it will be due for a lot of maintenance (roof, foundation, AC, windows).  I have a great tenant in there now, but with the prospect of a recession around the corner I'm wondering if it would make more sense to sell now.  For capital gains calcs I stand to make around $350k in profit from the purchase price (and I haven't made substantial upgrades to increase the cost basis).

Josh Young · Answer

Account Closed

That is a great question. The biggest question to ask yourself is: what will you do with the money and what kind of a return can you get vs leaving it in the property. The deferred maintenance makes it more complicated for sure.  I wouldn’t worry about property values going down if we have a recession, they have gone up in 7 out of the last 8 recessions because interest rates typically decrease in a recession. I’m in a similar position as you with one of my properties, but I have decided to keep it long term since I did a cash out refi 18 months ago, I figured it’s a 3 year break even on tax savings vs appreciation, but I like my leverage on it and I don’t have the deferred maintenance that it sounds like you have.

Theresa Harris · Answer

If you are going to sell it in a year to 'save' paying capital gains, why not talk to the tenant to see if they are interested in buying it?  If not and the current market is hot, sell it now.

Jennifer Volek · Answer

Roof, foundation, windows, as you mentioned are all big ticket items, yes...do you have the funds to take care of those items? I sold a house in 2019 thinking we were in a bubble then, but now that house increased another 150K since then. As far as the tax situation, talk with your CPA to see if it makes sense for you in your current financial situation to do so. And then, If you feel confident in the money you have made and feel like you could walk away happily, I would sell, 350K in equity is a pretty big spread.

Mo Karim · Answer

Account Closed Are you open to 1031? I live in Old East Dallas. I'm curious as to where your property is located. It really depends on the location.

Julio Gonzalez · Answer

Account Closed Another potential option is to sell it with seller financing so that you don't have a huge tax bill in the year of sale and you continue to generate income on the property.

Account Closed · Answer

Thanks for all the responses!  It gives me a lot to consider.

Account Closed · Answer

Depends on your investment strategy and long term goals as well as the underwritten financials on the property & mortgage. Also whether or not that money would produce better income in another asset.

Bruce Lynn · Answer

My thought is to keep it until about 6 months before your time limit is up.

No one can accurately predict if and when we will have a recession or even what affect that might have on the housing market.   When you think back a year or two I didn't hear anyone thinking interest rates would be this high.  I have also heard for the past 10 years or more that the DFW would crash big time.  We've heard inflation is transitory.  We've heard for the last year we will be in recession any time.  The Fed thinks raising interest rates will force unemployment # to rise.   So far people were flat out wrong or predicted something else.  Just way too many factors to know where we will be in 1-2-3-5 years.  What happens if Putin uses a nuke?  What happens if China invades Taiwan?   Things we just don't know.

As others have said you have to think if you cash out now, where will you invest the money for a better return and is that investment any safer than real estate.

My though is if you have a great tenant and they're paying rent and you're making money...keep moving forward.

New construction has slowed due to interest rates, so if you think the highest and best use for your home is for a tear down and new build, maybe that situation gets better a year or two or 3 from now.

Abhishek Kapoor · Answer

Sell it while you thinking about it. Sounds like you have lot of deferred maintenance.

John Morgan · Answer

I’d keep it for a couple more years. Sounds like your area is gentrifying and there’s a major housing shortage here in the DFW area. I’d hang onto that goldmine for a couple more years. I don’t see RE slowing down in this area with all this job and population growth. I bet it appreciates 5-8%/year even if the economy slows down. Housing demand is your friend.

Should I sell now or in 2 years?

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