Sell the SFR with acreage in a hot neighborhood, or hold it?

[Rob L.]

I’m a newbie with a question.

1. I currently own a house in a hot section of town, a planned neighborhood that city planners have spent years developing. There is a brand-new high school (which is in high demand) and hundreds of new homes in the South Cooper Mountain region of Beaverton, Oregon.
2. I have owned this house for 20 years. It predates all the new construction but is actually within the boundary of the new neighborhood. This SFR is on a small acreage (2 ac) and is ~4000 SF in size. It is unique as all the newer homes are on small (e.g. 4000SF) lots or are condos, townhomes.
   
3. I own house #1 free and clear, no mortgage.
   
4. I purchased a fixer upper in another section of town (near Intel) at a great price a few years ago. It was distressed and needed a whole house renovation.
   
5. I had to borrow 500K from the bank to purchase the fixer upper.
   
6. I put 250K into the fixer-upper and it’s now all updated and looks great.
   
7. Both homes now have about the same market value of ~$1M
   
8. The original plan: move into the fixed-up house for 2 years, rent out the older home in the meantime, and then make a decision - either stay in the fixer-upper, or renovate our old house and then move back. In either event, sell one of the properties. In fact, we've already moved into the fixer-upper. 
   
9. New plan? Now I am looking to change the plans because of the current market conditions and need your advice. Should I rent out my original house and keep it long term? Rental calculator says that it would probably cash flow around $17-20K/year. OR should I sell it now (market is hot), pay off my loans and then invest in something else? OR do you have other ideas or advice? How should I think about capital gains? My overall vision is to create cash-flow sufficient to stop working in 5-10 years. 

Thanks for your thoughts!

[Jaron Walling]

@Rob L. Regardless of your plan the answer is sell. You owned the house for 20 years. Sure it would make money every month but was it intended to be a rental? The number need to justify holding this asset. If it was a primary residence for the previous 2/5 years, and you sell, you'll save big on taxes.

The one thing I know about high priced real estate is it's the first domino to fall if the market shifts. You played the long game this property and won. Take advantage of that while the market is red hot.