Should we rent or sell a SFH in Fremont CA

[Wei Jiang]

We bought the house in 2014 at $830K and moved out in June, 2018. After that we changed that to rental, rented out for one year at $3200 per month, and after that we did remodeling and changed to airbnb. Before remodeling, we can rent out for $3500 per month. With COVID-19, we did not have any reservations for April/May/June. Now we are thinking whether we should sell or rent out as long term. Any suggestion/discussion are welcome.

Current principal balance is around $550K, we have 7-year ARM at 2.875% interest rate. We did the refinance as primary residence at 06/2016, and the interest rate will increase at 07/2023.

1. Sell: 

we can still get tax free $500K captain gain if we sell before June 2021 because we live as primary for 2 years (2016-2018) in last 5 years (2016-2021). If we can sell at $1.2M, we need to pay 6% agent/closing cost, we should get $1.2M*94%=$1.128M, and get $578K cash. The gain is $298K which should be tax free.

2. Rent for long term. Need to somehow get rid of all furniture currently used for Airbnb.

Assume we can rent out for $3500 per month, with one month per year for vacancy.Currently the monthly mortage is $2510 ($30120 per year) and annual property tax is $12K. 

Income: $3500*11=$38500, Mortage is $2510*12=$30120, Interest is $16K, Property Tax: $12K, Insurance: $1K, Maintenance: $3K per year (Not sure if this is reasonable?). The total profit per year is about 38.5K-16K-1K-12K-3K=6.5K per year, cash flow is -635 per month. Not sure if this is the right way to calculate profile and cash flow. Not sure how should I calculate ROI to compare with other investment options. Maybe change to interest only mortage or refinance will improve the cash flow and ROI but reduce profit (interest will increase).

3. Only do short term rental. Need to wait and see how the situation will change. Any suggestion?