Investment Strategy question

[Kenny Boyd]

Hello, 15 year experienced SF/MF investor here, seeking feedback from the BP group about a good strategy of a particular deal.

Built a 3000SF single fam class A in nice neighborhood in 2012, currently valued around $750k. Rented it out for the last year, and tenants are moving out in April.

Owe $210k on it now. PITI is $2400/mo

Considering either selling, or continuing to rent at $3500/mo.

If selling, I should be exempt from capital gains since I lived in it 3 (or 2?) of previous 5 years. Expect to net $450-500k range if I sell.

If keeping, it makes an easy rental but would lose the cap gain exemption if selling in future. And frankly I'm not fond of the political future of the city in which it's located. High taxes, high water, increasing crime...

What would you do??

[Taylor L.]

There are caveats to that capital gain tax exemption: https://www.irs.gov/taxtopics/...

As it is, your return on equity is less than 2.6% (assuming no vacancy or maintenance costs). ($1,100/mo * 12 mo / $500,000). That's not great. Plus you have a ton of risk in that one property, having all that equity in one place, driven by a single tenant.

Talk to a tax advisor about that capital gain exemption. I would sell and invest the returns in properties that produce better cash flow. If you don't want to manage rentals, then look for another strategy like syndication investing. There are options to invest in real estate without managing tenants yourself!