Sell our home or rent it out?

Question

We bought our current home in 2011 for $97k. We paid cash and have no mortgage. The home is currently worth about $497k. We now have an opportunity to move into my parents home which is bigger and “take it over”. The balance on their mortgage is $190k.

Should We:

Sell, take advantage of the capital gains law, move, and pay the mortgage off on the new house, credit cards, etc…? (This option would would not carry any debt, all debt would be paid in cash)

Or keep our current house, rent it out, and cash flow NET monthly about $1,500? (This option would most likely add debt by pulling a loan against property 1 to payoff and do some upgrades to property 2, and all credit cards)

Best,

Geoff

Randall Alan · Answer

@Geoff McFarlane

You have 5 years to be able to take advantage of the ~$500,000 gain exemption.  This would let you rent out the house for the next 3 years if you wanted and still get to take the gain.  In that time if you are netting $1,500/month - that is $54,000 worth of rental income you would make over the next 3 years.  Realistically you would expect the house to continue to appreciate during that time as well... even if at 3.33% appreciation - that is another $50,000 in appreciation you would make in the 3 years - give or take.  So I would continue to hold the property - but I would be sure not to miss the ability to exempt the gain - so be sure to sell within 5 years.  This would likely take coordination with a tenant at some point - (ie - plenty of notice to them that they must vacate in order for you to sell the property)

Since your current home is free and clear -  you could do a cash out refi or take out a new mortgage on the new house to be able to buy your paren't house and pay off the mortgage.  If they have a good interest rate it might be worth looking to see if you could assume their loan to take advantage of the lower rate.

My 2 cents.

Randy

Andres Montbrun · Answer

I’ve seen variations of that scenario, and it always boils down to a few key variables most people skip over. For instance, if you decide to keep the house as a rental, do you have a clear plan for covering any surprise expenses that pop up? A 1960s build can be a wild card for bigger-ticket repairs—especially if you haven’t recently updated major systems. Also, how confident are you in rental demand at that price range, given the shifts in South Florida’s market pockets?

On the flip side, with a sale, you walk away debt-free, but is that “opportunity cost” you’re paying by losing a steady cash flow? If your end goal is building a larger property portfolio, walking away from a fully paid asset might not support that—unless you can deploy the proceeds into something higher-yield.

I deal with these trade-offs regularly, but the best route depends on how you’ll handle things if the market shifts, or if the property needs heavy updates. How do you see your timeline—are you aiming for near-term stability, or are you comfortable with a longer, riskier hold for potential appreciation? If you’ve got a sense of your tolerance for management and repairs, that usually makes the decision clearer. Let me know if you want to compare notes on those numbers.

Khalid Bryan · Answer

Hi Geoff,

In my opinion, keeping your current home as a rental property could be a smart move. The $1,500 net cash flow you mentioned represents a tightened rental return that could provide consistent passive income. Treat this property as a business and factor in all the associated expenses, including mortgage payments (if you pull a loan), maintenance, and potential vacancy periods.

To simplify management and make this less of a hands-on job, I’d strongly recommend working with a property management company. This approach will allow you to focus on the financial benefits rather than the day-to-day operational tasks.

Additionally, consider how this rental income will contribute to your overall financial picture. With the extra cash flow, you could strive to acquire additional income-producing properties over time. For instance, targeting multifamily properties (2–4 units) is a great way to grow your portfolio. If you acquire one new property each year, you could significantly increase your wealth and potentially position yourself to qualify for larger investments, like apartment buildings or construction loans, within 10 years.

I’ve worked with clients who have successfully implemented this strategy, and it has proven to be an effective path to building long-term financial freedom through real estate.

Good luck with your decision!

Best,

Khalid Bryan

Luis Maqueira · Answer

Geoff McFarlane: Here’s the Plan

• Run the NumbersCreate a spreadsheet listing all the new income and expenses.The outcome? Positive cash flow, for sure.
• Create a spreadsheet listing all the new income and expenses.
• The outcome? Positive cash flow, for sure.
• Cash vs. AssetsAsk yourself: Do I want cash that depreciates with inflation and taxes, or do I want to build wealth?
• Ask yourself: Do I want cash that depreciates with inflation and taxes, or do I want to build wealth?
• 
• Becoming a LandlordYour house appreciating at 5% annually = $25K/year.Your parents' larger house = $30K/year.
• Your house appreciating at 5% annually = $25K/year.
• Your parents' larger house = $30K/year.
• Financing the PlanTake out a mortgage on your house to buy your parents' house.If their mortgage rate is lower than today’s rates (6.75%), keep their mortgage and assume it.
• Take out a mortgage on your house to buy your parents' house.
• If their mortgage rate is lower than today’s rates (6.75%), keep their mortgage and assume it.
• Why It WorksYour tenants pay the mortgage—not you.Each monthly payment includes ~$300 toward the principal. That’s like depositing $300 into a savings account every month.Plus, it’s an investment property, so you can depreciate it to save on taxes.
• Your tenants pay the mortgage—not you.
• Each monthly payment includes ~$300 toward the principal. That’s like depositing $300 into a savings account every month.
• Plus, it’s an investment property, so you can depreciate it to save on taxes.
• More Than $1,500This isn’t just about making $1,500 in rent—it’s about building long-term wealth. Do your homework, think like an investor, and take the first step!
• This isn’t just about making $1,500 in rent—it’s about building long-term wealth. Do your homework, think like an investor, and take the first step!

• Create a spreadsheet listing all the new income and expenses.
• The outcome? Positive cash flow, for sure.

• Ask yourself: Do I want cash that depreciates with inflation and taxes, or do I want to build wealth?

• Your house appreciating at 5% annually = $25K/year.
• Your parents' larger house = $30K/year.

• Take out a mortgage on your house to buy your parents' house.
• If their mortgage rate is lower than today’s rates (6.75%), keep their mortgage and assume it.

• Your tenants pay the mortgage—not you.
• Each monthly payment includes ~$300 toward the principal. That’s like depositing $300 into a savings account every month.
• Plus, it’s an investment property, so you can depreciate it to save on taxes.

• This isn’t just about making $1,500 in rent—it’s about building long-term wealth. Do your homework, think like an investor, and take the first step!

if you need a spread sheet model  message me will send you the one my group use.

Luis Maqueira Miami Multifamily Partners

Rene Hosman · Answer

Scott Trench made a spreadsheet for exactly this scenario! I'd recommend listening to this episode of BiggerPockets Money and then using the linked spreadsheet to help you decide

https://www.biggerpockets.com/blog/money-572

JD Martin · Answer

I would sell and take your gains. Your income isn't high enough for it to make sense as a rental and the closer you get to your residence limit the greater pressure you will have to sell it before losing your exclusion in whole or part. 500k right now can make $15k per year income with zero maintenance or tenant risks.

Matthew Becker · Answer

You can sell your property into an S corp take advantages of the gain and then depreciate it all.  You basically sell to your self but still own it.  So you will cash flow.  You could also do a cost seg on the $500K sale which depending on what the dirt is worth you can take a large deduction year one of renting it.  If you need cash for remodeling new home do a LOC on your owner occupied house before you rent it.  Then you can use cash and pay off with cash flow.  Keep loc and use it like a savings account and invest into more real estate.