Revisit: Corporate Relo: keep or sell?

Question

Revisiting this topic from this post 2 weeks ago after meeting w/ the Relo Realtors and gathering more information.

https://www.biggerpockets.com/forums/311/topics/835654-corporate-relocationdo-i-keep-my-house-to-rent-or-sell-it?highlight_post=4912806&page=1#p4912806

Wondering if anyone on this board could help me with calculating the value of the total relo benefit, the opportunity cost, vs keeping the house to rent.

Background:

• premium corporate relocation package, moving away from a nice neighborhood in Austin, TX.
• home backs up to a golf course, 4BR home, large lot, 10-rated school districts, great community (the kind where you know all your neighbors and hang out on driveways for happy hour, before COVID)
• Purchased 2016 for $542k. Financed $417k. PITI = $3000/mo.
• Current appraisal and estimated list price is $750k (wtf!), coming from 2 different realtors provided by Relo company.
• If I sell my home, relo company will reimburse me the 6% commission and pay closing costs, and 'tax up' the benefit (meaning they pay the taxes on the value of the benefit). I have upto 12 months to sell home.
• rental rates are uncertain and hard to find comps. I think I could rent for sure @ $3000/mo but would need to find a higher rate just to break even when factoring everything in.
• I do not *need* to sell this house to purchase my next house, but it certainly would make things easier

So, wow. big benefit offer. How do I value the opportunity cost of not selling the house and taking money off the table VS the equity gain of holding the property? I'm considering holding it as a rental for 2  reasons.

• Austin is a special market, specifically, this sub-market is even more special. House are appreciating way more than 6%. This seems to be a great investment for the equity play.
• The emotional aspect. If I ever do move back to Austin, I'm afraid I'll be priced out of this amazing neighborhood. Families often choose to add on a 2nd floor rather than move and find a bigger house because they want to stay in this neighborhood.

Anyone able to help me do the math or share a calculator that factors in the opportunity cost of taking the cashout ($364k equity, $45k realtor commission, closing costs, CapGains exclusion) vs holding for a rental (zero or negative cash flow but strong equity appreciation).

•

Ryan Kelly · Answer

@Adam L.

First of all, sorry to hear you are leaving Austin! Based on your numbers, I predict you could get higher rents for the home. If today’s market value is approximately $750k, I would predict you could pull in closer to $3800-$4000 a month. I would have to know the neighborhood and look at current comps of course.

I also agree the home may not appreciate as strongly as you continue to climb in price. Finding 1-2 more affordable homes or a small multi-family may be a safer play.

Jordan Moorhead · Answer

@Adam L. are there any creative ways you can rent this home to make it profitable? Airbnb, CHBO, Group home, etc

Tim Hendricks · Answer

Adam,

Congrats on the great appreciation! I've personally been through 4 corporate relos - they are getting rarer and rarer in today's world.

Austin is a great market to hold rental real estate, but typically your GRM will be pretty poor for a home like you described. It does not surprise me that you won't be able to cover your nut with expected rent, and that's before management, leasing, vacancy, and repairs/maintenance. All of those will take, on average, 25% of your forecasted gross monthly rents. So if you think you can rent for $3K, your net over time will be more like $2250.

I would take advantage of the great relo program & sell the house, then invest some of the proceeds in a more typical SFR play - $200-$275K homes in Austin.

Depending on your interest rate & term, I'm guessing you owe ~$400K on your home now, so you stand to clear $350K cash. Assume you will take $150K out for DP on a new primary residence wherever you are moving to, and you have $200K left to invest. Purchase 3 smaller/cheaper homes, have cash to buy your new place, and achieve positive cash flow on your new rentals while still getting exposure to the Austin RE market.

Historically, homes closer to the median price point see the best appreciation. I'm not sure that you will see the same run rate for the next 4 years that you saw in the last 4. The number of people with incomes able to buy a $800K-$1MM home is finite, and the options quite large.

Good luck!

Tim