To sell our home, or rent to continue growth through equity?

Question

I live in the outskirts of Mechanicsville, VA just outside of Richmond. My wife and I have lived in our current home for three years but are in the process of moving to Pennsylvania. Our real estate agent is saying that we can get $80,000 more than we paid for the home currently. We have an offer from a friend that would like to rent our home for $200 more than our mortgage. So far, it seems our home was a good investment after hearing that. Should we keep our home, rent it out and continue to build the equity? Do you think the housing market specially in this area, will continue to grow as it has?

Gregory Schwartz · Answer

What is your goal as an investor? What would you do with the 80k if you sell?

I was in a similar situation moving from NC to TX. I had lived in my house for about 5 years and had 60k in equity. I did not want to manage the house from a distance and had plans to grow a portfolio in TX. So we sold and put the TAX FREE profits to work here in TX.

If your long-term goal is to own 2-4 rentals. Use that to supplement your retirement and arent a RE junky. Then I'd say it's worth keeping. Let it continue to appreciate.

Keep in mind you can keep it as a rental for up to 3 more years, and still sell without paying capital gains tax. As long as you've owned the home for 2 of the last 5 years.

https://www.biggerpockets.com/blog/capital-gains-tax

Hope this helps :)

Tim Defibaugh · Answer

Hi Cody,

I'm a local investor and agent here in Richmond specializing in investment properties. I'd be happy to give you a free rental analysis and do more of a deep-dive into your specific situation to help you determine the best course of action. If you'd like to chat, feel free to shoot me a message here and we can hop on a call.

Thanks,

Tim Defibaugh

Adam Bartomeo · Answer

The best strategy is to refi to get the cash out and find a property that you intend to be an investment. Your primary was not intended to be a rental and the numbers don't often make sense.

Don't rent to a friend unless you are an experienced owner as friendships and family relations are hard to manage through business transactions. I see them go sideways all the time...

Dawn Roy · Answer

Congratulations on being in a positive equity position.  Like others who have responded, $200 above your mortgage isn't cash flow.  That will get consumed with yearly expenses, especially a 3 acre lawn to maintain.

A rule of thumb is...don't rent or lease to anyone you are not willing to evict.  A friend may not be the best choice for a tenant.  Have a property manager give you an estimate of potential rental rates for your area.

Cheers!

Marina Sorbie · Answer

It depends on your short-term and long-term goals. You mentioned you are moving to PA. Are you buying there? How long do you plan to live there? Would you come back to Mechanicsville at some point? What would you do with the money if you sell the house?

Cody Faucher · Answer

My mortgage is $2055 a month with taxes and insurance escrowed in. The house is mostly up to date. The only other added expense we would have is about 3 acres of lawn care maintenance. I also mispoke previously, we have about $275,000 in equity in our house with roughly half of the mortgage paid off and our realtor believes our home has appreciated by $80,000.We don’t have any immediate need to sell it for the money.

Jacopo Iasiello · Answer

What's your long-term financial goals? Do you need immediate cash, or are you more interested in building long-term wealth through rental income and property appreciation?

Theresa Harris · Answer

For $200 more than your mortgage-will that cover your expenses (taxes, insurance, maintenance, etc)?

Also look down the road-do you plan on moving back or eventually sell the property?  If the latter, if you sell in 5 years, you will have to pay capital gains tax on that $80K (plus any additional appreciation).

Andrew Freed · Answer

@Cody Faucher - Just so you are aware, $200 above your mortgage is not cash flow. It cost money to own a house and people normally allocate a percentage of the revenue towards repair, capex, vacancy and property management. If you take that into consideration, you are losing money on the property. Do you think you can rent it for higher? Did you check out what other properties like yours are selling for in the area?

Regarding the $80K, if it's your primary residence that could be considered tax free money. It all depends on what you plan on doing with the $80K on whether its a good opportunity or not. Lastly, it cost money to sell real estate, typically 6-8% of the purchase price in transaction costs. Definitely take that into the equation when determining how much money you will walk away with. Best of luck!

To sell our home, or rent to continue growth through equity?

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