Should I sell my San Jose home?

Question

Hi BP,

I'm considering a corporate relocation out of state and trying to decide whether I should sell my San Jose home or rent it out while we’re away.  We expect to spend 3-5 years out of state for the job, and then return back to the Bay Area.

We've owned the home for 4 years and it has appreciated a nice amount.  The company will likely help us sell our home.

From my vantage point, I think the reasons to sell are:

- Free money from the company to sell our home (~$80k commission)

- We’ve been in the home long enough to qualify for the married couple capital gains exemption and will likely take advantage of the full $500k

Reasons to hold and rent would be:

- Keep our 2014 low-ish tax base.  If we bought today, our taxes would be ~$8k higher per year.

- Risk that prices increase substantially over the next 3-5 years, and outpace any of the benefits above

Leaning towards selling since it’s hard to pass up free money, I’m not sure prices have much further to go from here, and we’re not sure we’d like to move back to the same home that’s been rented for 3-5 years anyway.  Am I thinking about this properly?  What am I missing?

Thanks in advance for your help!

Jason Hall · Answer

If you plan to return, hang onto the house. No telling what will happen with CA real estate. Given the inadequate construction volume, it would be a nightmare to sell and not be able to buy back in. Having said that, it's also silly to keep all the cash locked in the property. I would take some cash out and purchase a 4-plex someplace where prices are lower. This way you can use the equity from your existing home to generate additional cash flow.

David Lilley · Answer

If you absolutely plan to return I would rent it out but I would not do any sort of cash out just in case the market takes a hit.

Arlen Chou · Answer

@Chris C. you should REALLY listen to @Dave Nixon.  There are many stories of people who left the market who return and cannot get back into the game.  It is not just the appreciation portion that raises the bar, the property taxes are part of the equation that many people do not fully comprehend.  As you have already stated your taxes would increase $8k if you had to buy your place today.  That potential tax number, on an new purchase in the future, effectively does not go down it just continues to rise over time.  You have already identified this in your original post.  Locking in your profits of your primary residence may sound appealing.  However, if you are planning to come back the extra cash now will not offset the potential hurdle when you return.

I had a similar situation with my employer 2 decades ago.  They asked me to be an ex-pat, but I had a home in Mountain View.  Instead of helping me with the sale, I was able to negotiate an added stipend which covered my mortgage. There were some other things I negotiated that offset my added income tax burden.  More importantly, I was able to rent out my home during my time away.  This effectively created a situation where I was double dipping on my home, while still taking advantage of the tax benefits of home ownership and riding the appreciation wave.  As a side note, the company was paying my living expense abroad, so really I was tripling my savings rate.

I am not sure if the company you are speaking about is trying to get you to move for a new job or if it is your current employer needing your skills in a different location, but leveraging them to protect your position might be a better strategy.  I don't know if you have the leverage to negotiate hard with your employer, but it cannot hurt to try.

Calvin Liang · Answer

How about refi that house and rent it out to make sure its cashflow, then use the refi money (plus maybe your company gives you relocation fee?) to invest in MF at where you are moving to (house hack?).

Frank Wong · Answer

Hi Chris,

I think it really depends on what you are looking for.  Nothing like cashing out on an incredible real estate run the Bay Area is having.  Cash is king like they say.   You can buy multiple rental properties in the new market you live in depending in the price range.  This will allow you to have passive income and still be vested in real estate.   This strategy will surely create more cash flow on your money than have 1 rental property in the San Jose.

Very valid points made by others that selling now could price yourself out if you ever decide to move back.   Then again,  what is wrong with renting?  You can always move back and rent.  Nothing wrong with that.  Especially if you have multiple homes paying your rent.

I am not a big fan of refinancing out of the property and keeping it.  Will you take on bigger debt to leverage for more debt?   Not saying it doesn't work but not my cup of tea.

Sometimes your initial gut feeling is the right one.  Cashing out and sitting on the sidelines is also a plan.

Hope this helps

Ramsin Jacob · Answer

@Chris C. - Do not sell if you plan to return.  As many mentioned here, you will have difficulty coming back to the Bay Area market if your sold your only property.  Use it to your advantage and get some more doors.  Best of luck!

Dave Nixon · Answer

As someone who sold my San Jose house in the 2002 dot com bust and has been locked out ever since by the rising market - prices have almost tripled since then - I would say hang on to it just so you are locked into the market.

Robert C. · Answer

@Chris C., I don't know if you're still working this problem, but thought I would mention that you still have 3 years to take the $500k tax free with minimal downside (in my opinion). So, you don't have to sell right away if you want to try renting it for a while.

Houston Garcia · Answer

Chris, I'd have to agree with Dave on this. While most agents would tell you to sell, I would highly recommend holding onto your home if you are definitely planning to return in 3-5 years. Per data reports, the market in SJ (and South Bay overall) is actually even a bit more competitive than SF. With development at an all-time low throughout the Bay Area, I don't see prices softening significantly in the near future.

I would look into getting a cash out refi on your property and purchasing a cashflowing multifamily as Jason and Calvin have suggested. If you need a referral for an incredible lender to pull equity out, let me know - I have just the guy (he's done about 4 of them in the past week in South Bay).

Vivek Khoche · Answer

@Chris C.- I would second @David Song. There may not be a better time to sell (Slightly late). Use all the tax benefits, opportunity is right in the corner with money.

Good Luck

Vivek

Should I sell my San Jose home?

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