Should I rent or sell?

Question

Lurker on and off for a few years - first time poster. I’ve bought another residence and I’m trying to figure out if it would be best to sell or rent my current residence and am having a hard time figuring it out.

Location: Charlotte, NC

Property: 1100 sqft 3/1 within walking distance to mass transit and in desirable school zones. 3 miles from downtown. Very short commute.

Rental Value: 1800-1950

PITI: 1580

Purchase price: 285k, I owe 245k. 3.5% 30yr loan. I’ve lived in the home for 5 years. Refi’d, so 28 years left on the loan.

Current FMV: 430-445k

Pros for selling: I could potentially walk with a nice profit on this house. The appreciation has been great over the past 5 years. My transaction costs are lower because my spouse is a realtor, so I’ll only pay 3% on the sale. Lot value is probably $375k, so the actual structure probably only has $70k of value, max. The neighborhood was a transitioning neighborhood that is on the tail end of that process. Newly rezoned schools and multiple $1M+ home sales in the neighborhood have been good for the value of my house.

Pros for renting: As mentioned above, it’s in a neighborhood that is on the tail-end of transitioning. I don’t know how much more it could possibly appreciate, and I expect that eventually the lot value will be so high that the house becomes a tear down. Maybe I should capture the house value while I can. New builds on the tear down lots are around 3500 sqft, so 1100 sqft will be more of an outlier is time moves on. My new home is 5min away and I have had rentals in the past, so I’m fine with self managing. The home was renovated down to the studs 5 years ago, new everything, so I expect maintenance costs to be lower than average.

My gut says to take the money and run. The cash flow isn’t great as a rental and it has major equity built up. On the other hand, I’ve thoroughly diligences the house since I’ve lived it in 5 years. It’s been essentially maintenance free and the neighborhood is fantastic. Property this close to the city is limited.

Using an online calculator I found and assuming the property appreciates 3% per year and the after tax return on reinvestment if I sell is 5%, I’d still make $120k after 20 years if I rent. Unless I’m missing something, the numbers seem to support renting it, even though I could pocket $175k right now. https://www.allpropertymanagement.com/resources/rent-or-sell.html

I’d be very grateful for any thoughts you have.

Chris T. · Answer

@Roger Hurley - The big question I think you need to ask that I didn't see you mention is, if you sell, what will you do with the ~$175K? That is a lot that you could then reinvest. If you are wanting to stay in the real estate market, you could buy multiple SFR depending one the area or you could be more passive and buy into a syndication or REIT. You could become a private lender or a note investor. You could even just put it all into index funds. What ever you choose, the real question is, where is your $175K going to be doing the most for you? If you think the appreciation is near the top of this cycle and the house isn't going to cash flow much, then I'd say your equity isn't going to be doing much work for you and it could be better invested elsewhere.

Caleb Heimsoth · Answer

@Roger Hurley Since you’re married you get that entire gain tax free. Sell it and take the money and run

Thomas S. · Answer

Go with your gut, it is a very poor choice for a income investment property....major negative cash flow.Sell.

Jack Bobeck · Answer

@Caleb Heimsoth is right, trust your gut! Sell and move on.

Don Harris · Answer

Take the money and Run Forrest, Run!

Steve R. · Answer

If you're willing to be a landlord, I would definitely sell it and reinvest in properties that cash flow nicely. You have a lot of potential profit sitting there, which if you have lived there 2 out of the last 5 years, is tax free to you.

Derrick E. · Answer

Agree with others. No brainer on this one. Sell that sucker and take the profit! Lucky you!

Lesley Resnick · Answer

I would consider taking the equity out and keeping the property (refi or equity loan). Here is my thinking, You can get most of the cash out 70% of 445 = 60k out (less other mortgage).Here is the key - depreciation on 333k (assume 25% for land) will get you about 12k a year off you taxes plus the tax and mortgage interest. If you were cashflow neutral you would still clear over 1k-2k per month off your taxes and principal paydown. I am going to assume if you moved out of a house valued at 445k it was not to move to a lesser house. Further, you either paid cash or qualified for another mortgage without doing anything with the first house. It sounds like you are doing well and with that comes a tax problem.

Timothy W. · Answer

Based on the numbers and since you mentioned that you already have bought a new house, it is better for you to sell the current house and walk away with the huge profit.Good luck,Tim