I can't tell all of you how much I appreciate your input here. I'm going to think out loud for a minute here.
Before this offer, my plan was to hold this property forever. It was my first primary residence. The plan all along was to live in it until it was paid off, then turn it into a rental property. I've read all about the 2% rule and the 50% rule. Since there is no mortgage on this property, it easily passes the 50% rule but the 2% rule it isn't even close. The rent is only 0.7% of the 215k offer. However, I have only 130k tied up in the property so based on my initial investment, the rent is 1.2% of the cash invested.
My last tenants moved out 2 weeks ago. The fact that I don't have another lease in place yet is factoring into my thoughts and emotions here. I made the mistake of listing the house before the prior tenants moved out. I had a flurry of activity to start out but I showed the home with all of their crap in it. I had 1 app that I denied during that time. Since they moved out, I haven't had much activity and I'm afraid my listing has grown stale and I've grown impatient, making the offer tempting.
Here is one way I'm looking at it. Assuming a 5% vacancy and 5% maintenance/repair/etc, and taxes/insurance being factored in as well, my net income from this property is between 14k and 15k. That equates to 6.5 - 7% net ROI just on the income. (assuming a 215k investment. if I used 130k, the ROI goes up quite a bit.) The appreciation adds an additional 4-5% in this zip code. So, if you asked me whether I would invest 215k for a 10.5 - 12% ROI, I'd do it in a heartbeat. Perhaps I should set my goals higher.
This all comes down to this. Before now, my plan and vision didn't extend past the point of paying this house off and turning it into a rental. This is forcing me to be pro-active and think through my bigger goals as a real-estate investor which is long over-due.
I'm a Dave Ramsey follower and always have been. Cash / No Debt / Tortoise vs. the Hare.
I need a plan. I need to know what my longer term strategy is. Am I a buy and hold forever person? If not, why? Why do different people choose different strategies?
I ask those questions rhetorically just to say that I need to figure this out.
My wife pointed out something last night when we were discussing this. My neighbor who wants to buy the home has always wanted to buy it. This is the first time he's thrown out an actual dollar amount but he's said he'd like to buy the house for at least the last 3-4 years, even before we moved out. As long as he's living, I suspect he will continue to always want to buy it. So, while I can't predict the future, there is a strong chance that this offer will be on the table indefinitely. I could perhaps even counter and make the offer sweeter. He's got cash sitting around and really wants the property.
My primary question right now is whether the gains, if I sell, would be taxable. I bought my primary residence 2 years ago when I moved out of the home in question. If I sell this home today, can the purchase 2 years ago be recognized by the IRS as where the gains were reinvested making the gains tax sheltered?
I'm all over the map. Thanks for giving me a place to dump my thoughts, even if they are random.
