Sell or continue to rent?? Texas rental property

[Tyler M.]

Hi,

I'm having a hard time deciding if I should sell or continue to rent out a home in Texas. 

Option 1: sell the house now and put it in cash currently 4.8% while waiting for an opportunity to buy in Washington State

Option 2: keep the Houston home and rent it out for another 5 years 

The section 121 exclusion is starting to expire so soon I'll be paying the 15%+ tax on equity gains if I keep the home. On the other hand I have a low 3.125% interest rate and strong cash flow so it's hard to let go of that low interest rate mortgage.

What would you do??????

Here is the analysis work on 5 year ROI with assumptions at the bottom

Option 1 (Sell in October 2023):

Total Return: $198,200 (Future value after investing the proceeds from sale at 4.8% APR for 5 years)

Option 2 (Rent out for 5 years and then sell):

Total Return: $213,700 (Combined return from renting and selling in 2028)

Assumptions:

1. 1. Mortgage:
   • Remaining mortgage as of today: $271,000
   • Mortgage originated in April 2021 for a 30-year term
   • Mortgage interest rate: 3.125%
2. 2. Insurance:
   • Annual home insurance cost: $3,000/year
3. 3. Taxes:
   • Annual home tax: 2.25% of total home value
4. 4. Purchase:
   • Original purchase price: $340,000
5. 5. Sale:
   • Capital gains tax (if sold in 2028): 18.5% on profit (sale price - purchase price)
   • Assume selling fees: 6% of sale price (standard real estate commission)
6. 6. Rent:
   • Monthly rent for 2023: $3,000/month
   • Rent increases yearly with inflation (let's assume an average inflation rate of 2% unless specified differently)
   • Monthly property management fees: 6% of rent
   • Tenant switching cost: $3,000 every 2 years
7. 7. Maintenance:
   • Monthly maintenance and repair expenses: $400/month
8. 8. Appreciation:
   • Annual appreciation of the house: in line with inflation (2%)
9. 9. Current home value:
   • $440,000