Rent v Sell in Seattle

[Jennifer W.]

Torn between selling or renting a townhome in Seattle. If I sell, would be about a 100k profit. Renting would bring $400-$500/month more than the mortgage (not including rental expenses). This home has been my primary residence, but I'm moving into a new home. Was pretty set on selling, but am torn on it now.

[Greg Harriman]

@Jennifer W. There are many factors to consider in a situation like this.  I'm in a similar boat and I always consider the following:

1)  Do you need the cash now?  Many times people need the equity in their current primary to buy a new primary.  In your case, it seems that you don't need the cash, so move to #2.

2)  Do you expect there to be a large correction in the market?  If you expect the market to tank and you can lock-in your profit now (especially in your case, because your entire gain on the sale is likely tax-free - see homestead exemption IRS rule) you should sell.  If this wasn't your primary residence and you had a gain on the property, you'd either have to use a 1031 exchange to defer the gain and decrease your cost basis in the newly acquired property or you'd be taxed by the IRS on the gain.  Most likely that gain would be at a capital gain tax rate, but still, that's a substantial amount of money to just hand over to the government.

3)  Are there other investments out there that better align with your goals?  Many times people just try to make as much money as they can on their investments and they take on too much risk.  I'd take a step back and see if holding the property aligns with your short and long-term goals.

4)  How old is the property and what maintenance do you foresee on the horizon.  You mentioned you'd have $400-500 leftover after paying the mortgage (and I'd assume that includes an escrow account with taxes and insurance), but what other stuff could come up that eat into that?  The older the house, the more likely you are to have something big happen.

5)  How attached are you to the home?  If you have a lot of memories there, it will be harder to part from.

In the end, you can't time the market and if you could predict the future, you'd be able to tell which choice would work out best in relation to your goals.  Since this was your primary residence and the gain would be tax-free I'd just go ahead and sell it and look for other options.  But, that's an outsider's point-of-view and based on opinion.  Best of luck with your decision and I'd love to hear how it all plays out!