Sell or rent ?

[Jason Vo]

Please help newbie, I rented my house last 2 years in orange county CA, which was my primary resident for the past ten years. Should I sell it now to avoid CAP gain ( 121 rules), then invest in fourplex or just keep it as the rental property then sell it later when market pick up? Please help with all posible tax advantage scenario.

[Sharad M.]

Jason,

If you are going to purchase a 4-plex, then I think you need to compare your rate of return on your current property and the 4-plex that you can purchase. Let's say your house sells for$350,000 and after all the selling costs, you net $315,000. With rental income of $2,300 per month, your total annual gross income is $27,600 and net return comes to $13,800 (based on 50% rule). You are netting $13,800 on your net investment of $315,000, which comes to a net return of around 4.5%. This 4.5% ignores any appreciation.

Now if you were to sell the house and use the $315,000 towards down payment on a 4-plex, how much would your net return come out to? If it's more than 4.5%, I would sell, if not, then hold on to it.

Mitch also made a great point about 1031 exchange to defer the capital gains.