Sell and relocate, stay the course, or other options?

[Aaron Putnam]

Hi BiggerPockets!  I'm new to the site and to RE investing, but have been reading everything I can get my hands on.  I'd love to get some opinions on what I'm thinking.

I bought a 2br/1.5ba townhouse (~1000 sf) when I moved to Seattle in 2001, in the greenlake area - a couple blocks from the lake. Zillow estimates around 630k value, and I owe 85k on it. I paid 290k when I bought, so if I sell I'll be over the 250k profit and will have to pay some capital gains. If I were to rent it out I'd say I could get 2800. There's no HOA, just an agreement to split the cost of exterior paint and roof work. Some of the units are definitely rentals.

I also own a home outright in eastern WA in the Omak area, which was an inheritance.  I've been using that house to learn about home renovations - as well as learning how hard it is to find contractors (to say nothing of the quality of them).  After I finish the renovations it should be in the 200k range.

A few things I've been considering:

1. The house is pretty close to the Roosevelt light rail station which is supposed to open in 2021, which may give me more appreciation.

2. Any additional appreciation will result in more cap gains tax, and with the market softening it may not happen anyways.

3. Renting the place out would cover the mortgage and put a little cash flow in my pocket, but renting it out for such a low % of its current value seems less than ideal.

4. Selling the place and using the proceeds to start buy-and-holding properties that DO 1% is very appealing, but I've been scouring the MLS and not seeing that anywhere nearby.

5. Maybe it's time for me to relocate, my day-job has the benefit that I can do it from anywhere as long as my internet is solid.  Some good friends have already left town, as have several family members, so this wouldn't be a great hardship - though picking a location would be challenging.  

As for my goals, I'd like to supplement and eventually replace my 'day job' income with passive income from real estate.  I don't have an exact number here but after maybe 8k per month I'd feel comfortable walking away from the job.

Sorry for the brain dump here, it's nice to get it all written out and I'd very much appreciate any feedback!

Thanks in advance,

Aaron

[James Dainard]

Hi @Aaron Putnam, looks like you're in a great position to get started in RE investing.  To answer some of your questions, I'll start with the estimated value of your home.  Zillow tends to be inaccurate when assessing home values, I highly recommend that you use comparable properties, hire an appraiser, or speak to a broker to get a more accurate valuation of your home.  

1.) Houses close to planned light rail stations have already seen significant bumps in value.  Once the station is actually finished, it is likely that your home will appreciate in accordance to the light rail station. 

2.) Capital gains depend on the amount of time you have lived in the home in the past five years.  In answer to the market softening, it's unclear if the market will continue to plateau.  However, the job market in the Seattle area is still strong.  From my experience, real estate is like any other stock, it will fluctuate.  Right now we're in a price correction period, as our growth was exceeding the value of homes.

3.) If you are worried about renting low, there's always an option to make a few updates and try to rent for slightly higher. 

4.) Finding 1% properties is a tough task and highly unlikely that you'll find them on the MLS. To find the prized 1%, you have to be willing to look further outside the city. I've been able to find a few in Tacoma, but these are typically off-market purchases. They're hard to find, and few and far between, but they are out there.

5.) As far as investing goes, I deal exclusively in the Puget Sound region and can't weigh in on other locations.  

I hope this helps answer some of your questions!