All Forum Posts by: Billy Bey

@Scott E. and @Chris Davidson, thanks for the responses and confirming what I was thinking. It's so hard to cash flow in SoCal that I was thinking this could make sense. I also hate losing 2.375% money for the next 30 years! But the gain is just too good to pass up. Appreciate your time.

We're looking to upsize current home and buy in a neighborhood closer to kids school. Debating whether to sell our current primary or rent it out. Have pre-approval from bank on new home purchase without a sale contingency so have the option to go either way. 

Here are some facts:

Current home value (SoCal) = $1.8-1.9M with $680k mortgage. Would net ~$1M with sale after fees/expenses. Original purchase price + cost improvements is around $1.2M, so most of the capital gains would be wiped out by $500k primary home exclusion. Mortgage is 30-year at 2.375% (refi'd in 2019). All-in PITIA is about $4,300/month, anticipated rent is $5,500 (4BD/3.5BA,2,600 sq ft). Home is in a nice neighborhood with great HOA amenities (parks, pools, etc.), built in 2015. It's not the most expensive home in the community (some have gone in upper $2Ms), but it's higher than average.

I've been wanting to get into rentals, but it's been extremely hard to find cash flowing properties in my area and I don't have a desire to own something far away. Due to the great fixed mortgage rate and (relatively) low property taxes ($1k/month), this property will cash flow nicely out of the gate with the ability to grow over time as rents increase. I like the idea of maximizing my low fixed cost base on this property, but the $500k tax free gain and being able to use proceeds from the sale to minimize a higher mortgage cost on whatever we purchase is also appealing. We're looking at homes in the low $2M range and a mortgage rate around 4% +/- 0.25%. We'd put 20% down if we use current home as a rental, probably double that if we sell.

My gut tells me to take advantage of the current market and sell before it cools...I recognize there are signs it's already cooling. I'm also not sure netting $1,200/month on a rental (~$14k/year) makes sense if I can take home around $1M after fees and taxes. Is this a 1.4% cash/cash return which will require me to have a higher mortgage costing me ~4%? If that's the analysis, this seems like a no brainer to sell especially since the numbers exclude maintenance, vacancy, etc. 

How would you experts run these numbers and think about the decision?

Thanks Peter. Was wondering the same thing about the 1031. I think a lot of people didn't realize the tax change that no longer required an exchange to avoid cap gain tax on principal residence. 

I'm glad to hear everyone agrees with the conclusion I came to as well. Pocket the gain, avoid the taxes, put some down on the new place and use the remainder for some investment properties. 

Appreciate all the responses. Looking forward to jumping into the investing side of real estate soon! 

Hi Lindsey. Yes been living here since 2010. I think the property could cash flow about $200-500/mo after mortgage, HOA, insurance, mgmt and reserve. Agree that if I sell today I pay no taxes on the first $500k gain. My dilemma is if I turned it into a rental, I'd lose that if I rented it out for more than three years, it wouldn't qualify as primary residence anymore. So that's why I think selling is better option.

I like your idea of putting more down on the new property to make it easier to convert to a rental down the road. 

Hey all. First time poster here. Been listening to the podcasts as I hope to get into investing soon. Question for the group. 

I bought my current place, a 3BR Santa Monica condo back in 2010 when I was single. Have a wife now, a little one and hope to have another and we've started to look into new homes in the orange county area to give us more space and get me closer to my new job. 

Anyway, here's the question. Do I sell my condo or rent it out? I've been looking to get into real estate investing, so this could be a good entry point. But I also have seen significant appreciation (>$500k), so am wondering if it makes sense to sell and realize the appreciation and avoid taxes on the gain. I could then just invest somewhere else when the socal market moves. 

I would be able to cash flow the property, but the 2 year primary residence rule means I couldn't rent it out for more than 3 years before losing the tax avoidance. 

Any thoughts? I'm leaning to selling and avoiding taxes on the big gain. Any reason why I should convert this to a rental?  Thank you!!