Continue to rent vs sell

[Allan George]

Have a former multi-family house-hack in NJ that I converted to a full rental 2 years ago. I have 1 year left to qualify for the primary residence capital gains tax exemption.

Property has a 30yr mortgage @3.6% interest rate and currently cash flows ~$300a month after all expenses and splitting with my partner (with some room to get up to $350/400).

If we choose to sell, profit will be ~$100k after expenses and split with my partner. Funds would be used to pay down some debt and possibly purchase another multi-family locally in TX (although tough right now).

Do you think I should sell in the near future to capitalize on the tax exemption or continue to hold on to the property for cash flow?

[Dan H.]

I am shocked that there are multiple posts that indicate 7.2% (or 3.6%) is a decent return for residential housing.  Residential housing is not passive.

S&P500 lifetime is near 10%. 1 year CDs are over 5%. Various RE syndicators in recent years have been providing ~20% return. A BRRRR done correctly can produce infinite return. Except for the BRRRR, these options are significantly more passive than residential RE.

It is not clear if they are using a professional PM and this return includes paying a PM but I lean towards they are not using a PM.  Note a PM would likely charge between 8% and 10% all inclusive.  This implies that the investor is obtaining a return below the value of the effort exerted.

I would require a much higher rate of return to invest in residential RE even if the return is after paying a PM.  There are too many better options (higher return with less effort).

This does not necessarily imply that I would dump this investment.  I would analyze appreciation potential, other investment options, Desire to meet the 2 of 5 year rule to get the cap gain exemption, etc.

Good luck