Renting vs Selling

[Jorge F Rodriguez]

• Hi, I am planning to move to Tampa and I would appreciate some advices whether should I rent or sell my primary residency before leaving? 
  
• The house is townhome, located close to Lake Nona, build in 2022. Great amenities included with HOA.
  
• Here are some of the numbers. 
• Mortgage, Taxes, Insurance, HOA: $3040.37
• Estimated rent: $2475
• Total Expenses: $3660.12
  • Vacancy (5%): $123.75
  • Repairs (5%): $123.75
  • Capital Expenditures: $100
  • Property Management (11%): $272.25
    
• Information when I bought the house in 2022, new constructions 
• Purchase Price: $373000
  
• Purchase Closing costs: $4662
  
• Current home value: 400k-420k

Cash Flow: $2475-$3660.12= -$1185.12; -$71107.2 at 5 years

Cash on Cash Return on Investment (CoCROI): 0%

Appretiation per year (6%); $535,290.23 at 5 years

Equity: Loan value $345,089.53 at 5 years; $190,200.47 in equity at 5 years

Loan Value today 6/2024: $368,201.59

Total ROI in 5 years= (Total profit/Total Invested capital)/ Time (in years);

• Total profit: $190,200.47
• Total Invested: $71107.2 (neg cash flow) + $42757 (closing sale costs)= $113,864.20
• Total ROI (5 years)= ROI 67%, annualized ROI 10.8%
• 
  My biggest concern is that I am relying solely on appreciation and assuming will appreciate at 6% per year. 
  

[Randall Alan]

Quote from @Jorge F Rodriguez:

• Hi, I am planning to move to Tampa and I would appreciate some advices whether should I rent or sell my primary residency before leaving? 
  
• The house is townhome, located close to Lake Nona, build in 2022. Great amenities included with HOA.
  
• Here are some of the numbers. 
• Mortgage, Taxes, Insurance, HOA: $3040.37
• Estimated rent: $2475
• Total Expenses: $3660.12
  • Vacancy (5%): $123.75
  • Repairs (5%): $123.75
  • Capital Expenditures: $100
  • Property Management (11%): $272.25
    
• Information when I bought the house in 2022, new constructions 
• Purchase Price: $373000
  
• Purchase Closing costs: $4662
  
• Current home value: 400k-420k

Cash Flow: $2475-$3660.12= -$1185.12; -$71107.2 at 5 years

Cash on Cash Return on Investment (CoCROI): 0%

Appretiation per year (6%); $535,290.23 at 5 years

Equity: Loan value $345,089.53 at 5 years; $190,200.47 in equity at 5 years

Loan Value today 6/2024: $368,201.59

Total ROI in 5 years= (Total profit/Total Invested capital)/ Time (in years);

• Total profit: $190,200.47
• Total Invested: $71107.2 (neg cash flow) + $42757 (closing sale costs)= $113,864.20
• Total ROI (5 years)= ROI 67%, annualized ROI 10.8%
• 
  My biggest concern is that I am relying solely on appreciation and assuming will appreciate at 6% per year. 
  

@Jorge F Rodriguez

I would make sure you live in it for at least 2 years to avoid capital gains taxes, then sell the property. 

It’s negative cash flowing to begin with, and you will likely have to rehab it to some degree if you put renters into it.  

Presuming you are somewhat real estate savvy you can list it on MLS yourself and avoid giving up the seller's commission you would pay with an agent. Costs about $150 to list on MLS - you can google "your state" and "list on MLS" and you will find a broker (etc) who will offer that service. of course you have to handle the inquiries… but it's pretty easy… we've done it multiple times.

Your 6% appreciation approximation is less than the 7% average return the stock market  does long term - and lately it has been blowing that figure away - though as they say - past performance doesn’t equal future performance.
 

But definitely keep it for 2 years - even if it meant sitting for a couple of months to avoid the capital gains! 

All the best!

Randy

[Alacia Mahnken]

Hey @Jorge F Rodriguez!  An early welcome to Tampa to you! It sounds like you will need to sell unless you can find a way to increase your net operating income.  The first thing that comes to mind is to rent by room or padsplit. I know that area is big for professionals and professional students such as med students. I would not keep it if you can't find a way to get the cashflow out of the negative.

As Randall mentioned above, you want to avoid capital gains tax by holding it for 2 years. 

Not sure what your family situation is like, but if you sell, you may want to consider a house hack here in Tampa to start your RE journey. Let me know if you need any help navigating the Tampa Market.

[Frank Barletta]

@Jorge F Rodriguez

Sell that as soon as you can.

A negative investment is not a good investment.

6% is unlikely, so you'll continue to feed the bank and lose out. I wouldn't hold any longer, so write off as much as you can.

Wishing you the best.

[Dave Meyer]

I would not do this. You're making very ambitious assumptions about appreciation, and if you're wrong this deal could go from bad to disaster quickly. 

[Jorge F Rodriguez]

Thank you for all of your recommendations. I should have mentioned that I bought this house in April 2023, and according to some sources online, houses in Lake Nona (Orlando) have appreciated around 8-9%. I am a doctor looking to invest in multi-family homes in Tampa starting in September this year. I am not sure if I should sell now or in April 2025 to have owned the property for 2 years and avoid capital gains taxes.

[Frank Barletta]

Dave is correct -- If your appreciation is incorrect, you will be in deeper doo doo.

You can write off losses to lessen the pain. If you walk away with anything, put it in a CD or HYSA until you're ready to make your next purchase.

[Shawn McCormick]

@Jorge F Rodriguez I can agree with others to hold until your two years and also agree that Nothing in Orlando is appreciating at 8-9% anymore. That was the case, but the MSA is closer to 3.5 now. Small pockets may be higher, but certainly not townhomes and certainly not 8% any longer. 

You may have an issue with purchasing in Tampa if you do keep this one as you will be qualifying for a second home and your DTI may not handle that. I would consult with your CPA and your lender on options depending on which path may be more beneficial.

You may consider mid term rental as that area would support that strategy and you should be able to close that gap of PITI and income.

Best of luck to you. 

[Obed Calixte]

You’ll want to talk to a CPA to help you estimate what your tax burden would be in both the under and over 2yr scenarios, see if you qualify for a partial exclusion, etc.

It’s difficult to blindly say hold it or sell it now if you don’t have a full picture of what your tax burden.

[Chris Grenzig]

@Jorge F Rodriguez We went through this with our house, we would be negative on cash flow, but we weren't sure if it would still appreciate. I do think Florida in general has the ability to see some strong appreciation and rent growth after 2026/2027 because new construction starts for residential housing (especially multifamily) have dropped substantially. Right now all he projects are still being completed, but developments can be 3-7 year cycles depending on the size, so a lot of projects that kicked off in 2020-2022 when interest rates and insurance were below and rents/prices were soaring are still getting completed now. However, there's been significantly less new projects started (on average) from 2023 to today. So logic dictates that eventually demand will exceed supply in greater numbers within the next few years and we might start seeing higher rent growth/appreciation again.

However, I don't know that it means you should lose money every month in the hopes that eventually happen. If you're planning on buying MF in Tampa and you think you can find deals that will cash flow, then why not put your money into that and have some cash flow while still buying into the potential future appreciation/cash flow?

However, I would definitely consult a tax professional about selling your primary residence as the capital gains relief can be hugely beneficial and could impact your decision-making one way or the other. 

Also, happy to help evaluate your property in the Lake Nona area if you think it would be helpful at all.

[Jorge Vazquez]

Hi Jorge,

Remember, time and appreciation can heal everything in the long term. If you can hold onto the property for more than 5 years, the potential for appreciation and equity growth could offset the initial negative cash flow. Long-term investment often smooths out short-term financial challenges. However, selling might be the better option if you need to realize gains sooner.

Best,
Jorge

[Gino Barbaro]

@Jorge F Rodriguez

The risk I see is if you have to sell when you don't want to. Making assumptions of 6% appreciation over the next five years is risky in my opinion. And if the home becomes vacant and money has to be invested to re rent.

There are a lot of uncertain variables which add to the risk. I was in a similar situation when I moved to Florida, and I didn't want to focus on managing a single asset 1000 miles away.

Ultimately, what does your gut tell you? Go with your instincts, because it is so hard to make a 5 year decision based on what you know today.

[Alan Asriants]

Live in it for whatever time being to avoid capital gains and sell if you need to move. 

Even looking at gross cash flow you are at -600/m

That is hard to sustain. Wouldn't really keep an asset like that unless its at least breaking even at GROSS rent. 

I don't think you will really NET much from the sale too. So if you need to move, just cut the losses iMO