Asking for advice: Sell/swap or Continue to Hold it?

Question

Hi BP masterminds,

I purchased a home as a primary residence (3B2B) in 2017 and I moved to another state in 2020 and kept it as a rental since then. It's rented by room (2 bedrooms 2 bath to 2 girls for a roommate situation) for a total $2250 rental income per month and the mortgage is about $1600 a month so it gives me a monthly cash flow $650. It was cosmetically renovated in 2017 so I didn't have much maintenance cost but I start to have repair cost now. The roommate situation sometimes gives me headache when the two girls don't get along. Especially one girl was also giving me a lot of headache with late rent or no payment, but she finally moved out in August. It's the first time I have vacancy for one month now. Now the other girl remaining gives me crap about being unavailable for showings so she's sharing the house with nobody now.

With that being said, I'm looking for advice whether I should keep this rental and continue rent it by room (roommate situation); or try to get the remaining girl out and rent it as a 3B2B to a family; or cash out refi or sell it and reinvest into another newer small-multifamily or SFH in a nicer neighborhood.

This house I have is located in a mid-class neighborhood centrally located in Tampa, 15min to airport and downtown. I see a lot of development happened in Tampa in the last few years and it continues to expand. However property prices are also much higher now with high interest rate.

I've been procrastinating this decision and considering all factors while watching the interest rate progress. Any advice would be much appreciated! Thanks a ton in advance!

Sincerely,

Lyn

Kristina Kuba · Answer

@Lin Ding

It sounds like renting the room is a challenge and more of a headache in your experience. Having rentals should be somewhat passive and this seems more like an active job.

My recommendation is to 1031 exchange it into a small multi family and have it professionally managed.  The STR market has faced big challenges across the country but LTR rents still stay strong in Tampa deposits, a slight decrease in the last quarter.

Just like I have invested my own portfolio into larger and more higher price point properties because they appreciate faster.   For example, In August 2023, Tampa home prices were up 21.1% compared to last year.  If rates ease up just a little next year it will drive prices even higher.  Quite frankly, a lot of my buyers are waiting for interest rates to drop despite myself advising them differently.  When others zig, you zag.

Feel free to reach out if you have any questions.

Lin Ding · Answer

@Colleen F. thanks! I totally agree. If not a primary residence to house hack in NJ, the cash flow might be in the negative and the housing stock is low but I'm looking :)

Theresa Harris · Answer

Talk to an accountant about tax implications.  I think you are past the limit (I think if you lived in it for 3 of the last 5 years) to avoid capital gains.

Check your local laws, but in most cases the roommate doesn't need to be home for you to do the showing.  You do need to give 24 hours' notice-the notice is telling them, not asking if you can enter and for showings, I would not show her room.  Of course she wants to live there one her own and have the house to herself for the price of a room.  Why only 2 roommates if it is a 3 bedroom?  I'd either rent the whole house to someone or sell and buy something closer to where you live.

Alex Olson · Answer

I agree with @Kristina Kuba in that a 1031 exchange would maximize your wealth building. It is good to upgrade to either more units, better location, newer property, and or better cash flow. Not sure what markets you are considering since you moved out of state?

Theresa Harris · Answer

Call a few local accountants and ask them.  As for where to buy, looks for towns that you are familiar with-eg spent time there growing up, went to college, have family.  Then start running some numbers.  You should be able to find a PM company where the owner or someone working there is also a realtor or at least able to buy and sell properties.  Interview a few companies and go from there.

Dave Foster · Answer

@Lin Ding, You must have lived in it for. only 2 out of the 5 years prior to selling.  But if you moved out late in 2020 your window is quickly closing for a primary residence exclusion.  But the 1031 option is still available since it is currently being used for investment.

Colleen F. · Answer

@Lin Ding if you are asking the roommate to show, write an increase in her rent during the vacancy of the second room.   (it would be better if you upfront said upfront that no roommate past 20 days would increase the rent).  Raising the current tenant rent is also a good way to get her out. These should be month to month.

If you are in NJ probably good to get out of rent by the room in FL.   Might just sell regardless of interest rate although if you 1031 to the tristate area it is expensive. I have a lot of family there and I don't see how property taxes wouldn't also be an issue for your net on any property.

Lin Ding · Answer

@Theresa Harris

You're right. I lived in the house for 3.5 years out of 6.5 total years. Do you have recommendations for RE friendly accountants? The girl is being difficult and uses unavailability/privacy/security as her reasons and since I'm out of state, I'm not able to do showings in person, I have to rely on her to open the door for prospective tenants. The third room isn't rented because it's a much small room with limited storage space and it has to share bathroom with one of the other two rooms which are advertised to have private bathrooms. I'd also prefer to rent the whole house so I don't have to deal with the roommate dramas but because the leases were signed at different times, they move out at different times. Also due to the age of the house (even though it was renovated in 2017), it start to require maintenance which is another thing I want to get away from. Do you have recommendations on which cities to buy if I'll get property manager might as well. I can self manage if I buy one close to where I am now but the prices are so high here in NJ.

Lin Ding · Answer

@Kristina Kuba @Alex Olson @Michael Haynes

Thanks all for the advice and tips! I bought the house in 2017 and moved out of State at end of 2020 during covid to be close to family and kept the house as a rental since I moved away. I won't move back and I purchased a 2-unit multi as my house-hack primary residence this year in NJ where I work now. Anyways, I thought about selling the Tampa house and 1031 into another small multifamily but house prices in my current market are so high. To get into a good property in a good location, I'll have to put all equity from the Tampa house sell as the down payment on another investment property here. That's why I haven't moved forward yet. Also I don't want to spend 6 months to list & sell the Tampa house so I'm exploring & entertaining some offers I received from other peer investors that contracted me.

Michael Haynes · Answer

Hello Lin Ding in New York. You say you bought your first Residence in Tampa in 2017? Do you know the First Time Homeowner's IRS rules? You can live in your Home in Florida, which we Homestead to reduce the Property Taxes by $50,000, for 2 out of 5 years and Sell Tax-free up to $250,000. Did you do this? Then, SELL. Or come back to Tampa and stay here for two years and then SELL. You Bought before Covid. I moved from Tampa when I sold my four Commercial lots on Dale Mabry Hwy. in 2020 and paid $175,000 Cash for a 3/3 Townhome in Valrico. In one year it was valued at $320,000. Like the Ad on TV..."Does he knows he is sitting on a Gold Mine?" Apparently, you do not know your numbers or the rules. You have two choices.

Asking for advice: Sell/swap or Continue to Hold it?

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