Should I sell or rent my primary residence?

Question

General question bigger pockets family,

I'll be moving to Okinawa, Japan for work and on the fence between selling or renting my property (3 bed, 2.5 bath, 2 car garage Condo, built in 2021) in Pepperell, MA.

I purchased it as my primary residence in September 2021 for $480K using the VA loan with a 2.75% and currently owe $460K.  I plan on selling my primary residence this September to avoid paying capital gains taxes and intend to list it for $650K. I would net $155K after expenses if it sells for $650K.

My question is should I sell or rent the property? I am leaning towards selling because it's still a buyers market where I live and not confident that the rent will cover the mortgage, any thoughts?

Also, are there any restrictions on selling your primary residence consecutively every two years and netting all capital gains tax free?

For instance, I sold my last primary residence of two years in Texas in 2021 (77K Cap Gains) to buy my new home Massachusetts. I just want to make sure that there aren't any restrictions that prevents us from selling primary residence(s) back to back and netting capital gains tax free.

Please let me know and thanks, fam!

V/R

Eric

Chris Seveney · Answer

@Eric Lam

If it was me I would sell for the following reasons:

1. As mentioned selling at good time

2. You will be out of country. Even though it’s a condo and could have a property manager, being on the other side of the world with a headache could be an added stresser

Theresa Harris · Answer

I would sell it.  If you will be out of the country and aren't sure if rent will cover the mortgage, what about property management fees, if property taxes go up or condo fees increase?  You can sell it and shouldn't have to worry about capital gains.

Tammy Pack · Answer

My understanding is you can sell your primary residence tax free (up to $250k profit for single, $500k married) if it was your primary for two of the last five years. BUT there also has to be a calendar year. So if you sell a primary in 2021, you can't do it again in 2022 but would have to do in 2023 (which sounds like you are doing). This bit me once and cost me $50k

Chris Merchant · Answer

That was my initial thought too, but you'd have to do some number crunching to see if rent could cover the mortgage.  But it seems selling may be the best option unless you want to deal with it across the globe, maybe try contacting a local PM company and see what they feel it could rent for and what their fee would be and then see if the math works for you.  If you list for 650k it may end up in a bidding war, how long do you have to decide?

Jaron Walling · Answer

No brainer. I'd sell the primary residence. Stock pile cash while you're in Okinawa.

My brother-in-law was stationed there for 4 years. They really liked it. His family came back and bought a new construction in North Carolina.

Eric Lam · Answer

Hi Jason,

Thanks for the clarification.  I'll be in Okinawa for 3 years and don't plan on going back to Massachusetts ever. Selling sounds great and and my likely course of action.

V/R

Eric

Jason Bohling · Answer

@Eric Lam as others have pointed out, there’s no restrictions on selling like you described.  I did this on several live-in flips (didn’t know that’s what it was called when I did it) utilizing my VA loan each time, too.  As long as you have lived there for 2 out of the last 5 years and a minimum 24 months have passed since the last sale, you’re golden.

How long will you be in Okinawa?  The reason why I ask this is currently you have $480k of your VA loan eligibility tied up into this property.  Most likely, especially if you’re gone for a 2-3 year tour, prices will begin going up.  If you don’t move back into this same property and instead go to buy something else, you have significantly less VA loan eligibility available for a subsequent purchase.  So, it may be best to sell it, take the profits and have your full VA eligibility restored for your next primary home purchase at 0% down with the proceeds from the sale available for down payments on an additional property or two.

Eric Lam · Answer

Hi Allan.  I'll be past the 2 years in September and shouldn't have to pay taxes. My question was if there were any restrictions for selling your primary residence every two years and not paying capital gains taxes because I sold my primary residence in 2021 and will sell again in 2023.

Allan C. · Answer

@Eric Lam you can sell a primary with capital gains exclusion within 2 years, but you won’t be eligible for the full exclusion. If you relocate for a legitimate reason then you can pro-rate the cap gains exclusion. It’s possible your cap gains may be lower than prorated limit, so check with accountant.

Nick Brigham · Answer

Sounds like based on the numbers it wouldn't be cash flowing therefor I would personally sell it and then depending on the capital gains either 1031 exchange it or sell it outright.  Honestly 1031 exchange may be the way to go especially if you can find another cash flowing property and can reuse your VA loan at all.  Maybe a duplex or something!  Let me know if you want to chat more about it!

Should I sell or rent my primary residence?

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