Logic vs. Emotion in a Rent vs. Sell Decision

Atlanta, Georgia
General Real Estate Investing
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Logic vs. Emotion in a Rent vs. Sell Decision

Duane GunklerPro Member
Acworth, GA · Member since 2017 · 51 posts · 22 votes

So, the TL;DR version -- 5BR 4.5BA house.  Value about $500k, owe $258k -- 30 year @ 2.25%.  Rent about $2,800 and cash flow about $800 after cap ex, op ex, etc.  Logic = Rent.  Emotion side is that it was my wife's and late husband's house, so she wants to sell.  

As you can see from the brief description above, I'm in a tough spot with this house. It was my new wife and her late husband's primary residence and the home they built where they raised their two children from 2016 - 2019 when they lost him. We have since built our own new home and moved out of the property and it is now vacant. Obviously there is a tremendous amount of emotion tied to the property. She would like to sell it so that it's not a constant reminder and I completely understand why she would feel that way. Obviously, on paper, I would much rather keep the home and rent it out having such great equity and an amazing rate. It is in a very desirable neighborhood with amazing amenities. It has a VA loan currently, so if we were to sell, I suppose I could try to market to other VA-eligible buyers so that they could maybe keep the 2.25% if that's an option to try to add value. Just curious to get the thoughts of some fellow REI folks to see your thoughts on this one?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y

You have almost 250k in equity wasting away.  800/month = 9600/year in CF.  That means from this point forward, it would take you 26 years for the accumulated CF to equal your current equity.

If you sold the property, even after closing costs, you would walk away with at least 150+ in cash.  Take that 150 and use it as a DP and the new PV would be 750k.  Right now it's at only 500k.  This impacts you moving forward since appreciation is applied to the PV, not the equity.  The equity grows as the appreciation grows, on a 1 to 1 basis.  This means if both houses (500 and 750 PV) has the appreciation, the 750k property would grow exponentially faster.  Not to mention the added CF to what you would experience now since the new property would be worth 50% more than the current one.

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  • Jonathan Bock
    Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
    2y

    Emotion > Logic 

    Not advice but I think you will find logic in your emotional decision

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    2y

    You have almost 250k in equity wasting away.  800/month = 9600/year in CF.  That means from this point forward, it would take you 26 years for the accumulated CF to equal your current equity.

    If you sold the property, even after closing costs, you would walk away with at least 150+ in cash.  Take that 150 and use it as a DP and the new PV would be 750k.  Right now it's at only 500k.  This impacts you moving forward since appreciation is applied to the PV, not the equity.  The equity grows as the appreciation grows, on a 1 to 1 basis.  This means if both houses (500 and 750 PV) has the appreciation, the 750k property would grow exponentially faster.  Not to mention the added CF to what you would experience now since the new property would be worth 50% more than the current one.

    2Reply
  • Duane GunklerPro Member
    OP
    Acworth, GA · Member since 2017 · 51 posts · 22 votes
    2y

    @Ken M. I moved in with her there a couple years ago and we moved out this past year, once our new home was completed, so we would qualify for living there 2 out of the last 5 years for sure.

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  • Carlos A.
    Investor · South Florida · Member since 2020 · 36 posts · 30 votes
    2y

    I learned this a while back when I first got married and it has been a focal point of mine:

    Happy wife, happy life. 

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    2y

    Sell, no hesitation.  Piece of mind is a lot more valuable than a piece of property.  Also, you don't want to lose the tax free gain on sale.  And you can easily get a hassle free, risk free 5% or ~$1,000/month return right now (wealthfront, treasury notes, money market mutual fund, CDs)...or roll it into a different investment property.

    1Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    2y
    Quote from @Duane Gunkler:

    @Ken M. I moved in with her there a couple years ago and we moved out this past year, once our new home was completed, so we would qualify for living there 2 out of the last 5 years for sure.

    The tax-free capital gains likely makes it worth selling if it appreciated greatly over the last 8 years like almost everything did -- it may take a lot of monthly cash flows to save the amount you'd save in taxes that you'd lose if it converts to a rental. Based on the background, it should ultimately be her decision, even if it's based on emotion. And not sure of the ages of her 2 children from that marriage, but maybe suggest a large portion of it should be going to a trust, LLC, some entity where you invest in property as Trustee or managing member for their future.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    2y

    How much has the house gone up in price?  Capital gains are something you want to factor in along with what your wife wants to do.

    0Reply
  • Bryan Montross
    Real Estate Agent · Crownsville, MD · Member since 2018 · 102 posts · 36 votes
    2y

    My wife and I still own the house she lived in with her late husband and kids. She had kept it as a rental while she was not in the area with the intent to move back into it when she returned. However, we met each other and moved into a house of our own. I do most of the real estate investing, but I have always left the decisions on that house to her.

    I would say, if she wants to sell the house, that is probably a good idea. I think you could leverage the equity to purchase additional real estate that may cash flow better, but it really comes down to what your goals are with investing. You might be better to sell and invest in something other than real estate. But any way I look at it, I think you need to sell for your wife's peace of mind.

    0Reply
  • Mary Jay
    Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    2y
    Sell it and buy another one. I agree with the previous reply: happy wife=happy life
    0Reply
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