What to do with equity with upcoming changes to rental laws?

[Benjamin Kroll]

I have a good problem with an old VA loan property and to much equity.

Current situation: Tenet is about to move out and I am questioning whether to rent again or sell. I originally bought with no money down and the property is 14 years old and in good condition, but has a lot of upcoming expected maintenance due to its age( ie furnace, roof, washers, dryers, kitchen appliances, etc) I have been told that I can possibly sell under IRS Bulletin 523 and avoid capital gains taxes but have not done my own research on that yet. The property is located in WA state which has legislation on the floor introducing rent control and changes to eviction laws.

Money facts: As a rental the property cashflows $310 after mortgage, escrow and managment, small repairs planned or unplanned negate all the cash flow.

If I sold it I could expect between $140-150000 after taxes and expenses. Which ironically is the remaining principle on my primary residence which will likely be a rental in a few years and is in TN a potentially more landlord friendly state.

External influences: My wife and I are pursuing FI mainly through real estate. We are both moderately paid professionals but foresee upcoming changes in our careers in 1-3 years.

Options that I see:

Option A: Continue to rent making minimal cash flow with small increases of rent over time, keeping the equity in the property to be used later, with high potential for increased equity.

Option B: Sell the property in WA and use the proceeds to live mortgage free for a few years saving more in living expenses then the property cash flows. Then in a few years have a rental that is owned out right and cash flowing between 800-1100 a month.

Option C: Open to suggestions or other trains of thought.

What is your advice?