To sell or rent?

[Blair Bennett]

We have a home in NE Mesa. We are in the 2/5 years so we could sell and profit 200K+ tax free or we could rent with cash flow (not including mx) 1K/Month. Our original plan was to build wealthy by holding this property for 10+ years but now we are thinking 200K tax free is sounding pretty good. We do have some student loans that would be nice to pay off and be free from. Not sure of the best move. Our end goal is to retire early.

[Josh Young]

@Blair Bennett 

You need to calculate your Return On Equity ((Cash Flow + Principle Paydown + Projected Appreciation)/Equity). Make sure you use net cash flow, so you are accounting for maintenance, repairs, cap ex, vacancy, and property management; your cash flow might be $500 per month net if the gross is $1k. Principle paydown is something that a lot of people gloss over, but your interest rate and loan balance play a big part in this. The projected appreciation is tough to assign a value to, but 3% is a good conservative number, then it just depends on how much the property is worth. So if you have $200k in equity and your return total return of all 3 of these things is $30k per year that's a 15% Return On Equity. So, you have to ask yourself, if you sold it, could you get a better return than that by investing in something else? The interest rates on your students loans are probably much lower than that. There are also tax considerations, such as depreciation and IRS Section 121 Exclusion like you mentioned. 

I would probably keep it as a rental for two years and then consider IRS Section 121 Exclusion, but I would probably still keep it as a rental at that point, and if interest rates get below 6% I would consider a cash out refi to buy another investment property.