Sell or Refinance?!?

Question

Hey BP Community!I am faced with a pretty big decision and would love to hear what you all think. I am trying to relocate to Austin TX within the next few months and deciding on whether to sell my home or refinance & rent it. Here are the facts:

Location: Raleigh, NC

Estimated Current Value: $300,000

Outstanding Principle: $154,000

Monthly Rent: $1,600/mo (I could probably get more, but this is a conservative estimate)

New PITI: $1,230/mo

Estimated Capital Gains on Sale: $300 - $154 - $18 (6% agent fee) = $128k

Estimated Cash Back on Refinance: $240 (80% LTV) - $154 - $6 (refinance fees) = $80k

Some things to note: This has been my primary residence for the past 2.5 years, so no Capital Gains tax on sale. The PITI number above doesn't include other expenses (vacancy, capex, etc.). Assuming I self-manage and pass all utilities to the tenant, it's safe to say that my monthly cash flow would be $0/mo the first year. Obviously, more cash back now through a sale sounds nice but Raleigh is an appreciating market and I can't deny the long-term wealth building impact of holding on for the long haul.

Stephen Stokes · Answer

@Kenton LeVay your cash flow will be a net loss of $30/mo. Sell.

Math- rent x .75 subtract PITI.

Sophia Griffies · Answer

That’s good advice from Becky Lai. The market in Austin sounds like the Triangle....homes selling over listing price, multiple offers etc. I would start by talking to a realtor in Austin to get a better understanding of the market there. If needed, you could possibly rent in Austin while you look for a home if the numbers and effort make sense for you. If so, you should also ask the realtor about rental options (Are there short-term rentals available, etc).

Dan Hunter · Answer

@Kenton LeVay

Sell it. If you have a property manager, you’ll be making negative money. Better to take the sale $ and not have to pay capital gains on it.

Caroline Gerardo · Answer

Job relocation? Will the new job offer some type of housing help/down payment/rent? Is new job a W-2 because the write off on taxes might help as you will likely lose some. Is the house walking distance to the college? If the location is amazing, keep it.

Account Closed · Answer

Try selling the property without a broker and save the 6%. I just purchased a 6-unit property sold by the owner without a broker. I believe you can advertise properties on Zillow and other websites the same as brokers. When doing the math, you need to project appreciation and not only cashflow because the big money is in appreciation. For many properties, the cashflow can be zero, but the appreciation can be $10,000+ per year, or more. I don't watch markets, closely, for the current prices I am selling my homes in Las Vegas for it appears that in the past few months prices increased from a little under $300k to $330k. When you spread the new prices over a 10-year period and include past appreciation the Las Vegas properties probably would have turned a decent profit even with zero cashflow. Not sure about that, but you need to do the math very carefully.

Overall, managing and making a profit with long-distance properties is very difficult compared to owning locally and I would sell if properties are not appreciating, significantly.

Becky Lai · Answer

@Kenton LeVay Having just recently purchased two rentals in Austin, if you haven’t already done so, I would highly recommend taking the time to study the market closely in Austin. The bidding wars have gotten really nuts with homes selling well over listing price, cash offers, no contingency, etc. Make sure you feel confident you can find a neighborhood you like at what you can afford before you sell!

Brian G. · Answer

@Kenton LeVay I would sell and enjoy the sec 121 cap gains tax exclusion.

Bruce Lynn · Answer

I would sell it.  I think you could look at it another way....would you buy it at that price and rent if you were looking for an investment?  Rent looks way way low for most investors.  I think they would pass.

Remember you'll have some closing costs, so I normally say it is about 8% to sell.

If you keep it you may also have property management expenses, but you'll also get depreciation, so that will improve your cash flow if you normally pay taxes.

Are you sure about the rent number?   I'd call a couple of property managers in the area and ask them what they think they could get for rent.

Bill B. · Answer

Couple of notes.

Unless you put nothing down, your equity has nothing to do with your capital gain. You only pay capital gains on your net sales prices minus your net purchase price.

I wouldn’t sell because fo the low cashflow. There’s profit in that loan payment, and it’s probably tax free because of depreciation.

But, unless you plan to move back within 2 years I’d sell because if you truly have $130k in capital gains (probably not, that’s probably just equity, but maybe.) you’re turning a tax free sale in to a $45k tax liability.

That means it could be 10 years with zero vacancies or repairs just to recover the extra taxes.

Take the money with you and buy a duplex or fourplex in Texas if you can stomach it. Or buy 2 x SFR. Otherwise buy a new primary with a big down if you aren’t ready to start investing in a state you know nothing about.

Michael Plante · Answer

Sell

Sell or Refinance?!?

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