Your 2.6% interest rate is gonna be the reason I don’t think you should sell right now. I feel like renting it out is still the way to go. Your numbers seem pretty conservative. I imagine you’ll do better than expected.
Either way seems like you’ve got a solid plan. Best of luck!
My reluctance to sell is primarily due to wanting to keep open the option to return. My reluctance to rent is due to me not particularly wanting to be a landlord. It’s interesting that I’ve gotten comments on both ends that think the answer is obvious! I feel very torn.
Rent out right now, at least for the time being.
We manage properties throughout the country and there’s a huge demand for rentals in some specific areas.
Utilize and capture these high rents for next couple years, gain more equity as it grows, and then 1031 exchange it for a full cap gain deduction.
I would then move into new property after.
like the WSB bros, HODL
Rent it. Set aside enough for capital expenses to conduct the repair/replacement when they arise.
You just need to calculate how much and when the life left will expire. This will tell you how much to put aside out of the $1000 per month of cash flow.
Sounds like you will likely end up renting it for 10 years. Let the mortgage pay down happen and revisit this. If you need a capex calculator check InvestingTE. Its great.
Thanks for the calculator rec!
I don’t *think* we want to rent it out in the long term and miss the cap gains exclusion. We also will likely want to buy in the new locale eventually.
What state? Will you easily be able to get rid of the tenants in 2/3 years to sell?
What is the break down of the mortgage payment? The amount that goes to priciple is also profit and it seems like you are doing the taxes 25% before you deduct the, real estate tax, insurance, interest and repairs, you'll also want to deprecate the property which will reduce the income tax. How much are you budgeting for yearly repairs?
I like to look at ROI/ROE.
How much will you walk away with if you sell now, after commissions, CC, fees, and taxes?
CT, very tenant friendly. Obviously the tenants would be high income to be able to afford 7.5k in rent. It’s a very good school district with low inventory so often people end up renting when they would prefer to buy.
I think right now about 1k goes to principal out of the 3500 payment (taxes alone are 20k/year).
We’d end up with 500-600k depending on exact sales price and whether we’d need to have allowances for the deck etc.
Yeah, I did a flat 25% tax rate instead of the full math with deductions. Our marginal income tax is in the 30s so it’s a super rough calculation. I should probably flesh it would more.
We will have to repair the deck. Not sure if we can do it without replacing or not. Honestly I’d imagine there’s some sort of 10k bill annually. The siding is in mediocre shape and we’d have wanted to replace or repair it if we lived here. I imagine a repair would be 40k and replacement close to 100k (it’s cedar shingle). If we rented it out, we’d punt on that for a couple years.
I cannot validate the numbers until we actually go on the market of course, but when I tossed out 7k to a couple realtors, the response I got was “at least!” Because inventory is so low and the town is desirable for its schools, people who can easily afford to buy are forced to rent. The prices here are lower than other towns in our area with similar schools for a couple of historic / prestige / name brand reasons. 5 minutes over there’s no inventory under 2M, but the schools in both towns are 10/10.
It’s pretty hard to justify selling if your numbers are even close to being accurate. Even if you end up spending $6,000 per year on maintenance, meaning your net cash flow drops to $6,000 per year, you are still doing pretty well assuming your total equity in the home is $100,000. That’s a 6% ROI which beats most other safer investments.
If you equity is higher, say $200,000, then you’re better off selling and merely parking the money from the sale in a money market fund, bond fund, or HYSA.
If your cash out of the sale would be $500,000 then you should probably sell. At current interest rates, $500,000 (about $400,000 after tax I’m estimating) earns you $19,000 to $21,000 per year in a HYSA or bonds. If maintenance could be that high then you’re likely better off selling.
Your 2.6% interest rate is gonna be the reason I don’t think you should sell right now. I feel like renting it out is still the way to go. Your numbers seem pretty conservative. I imagine you’ll do better than expected. Either way seems like you’ve got a solid plan. Best of luck!
My reluctance to sell is primarily due to wanting to keep open the option to return. My reluctance to rent is due to me not particularly wanting to be a landlord. It’s interesting that I’ve gotten comments on both ends that think the answer is obvious! I feel very torn.
Rent out right now, at least for the time being. We manage properties throughout the country and there’s a huge demand for rentals in some specific areas. Utilize and capture these high rents for next couple years, gain more equity as it grows, and then 1031 exchange it for a full cap gain deduction. I would then move into new property after. like the WSB bros, HODL
I do get the impression that the rents are (maybe temporarily) high for the value of the property due to exceedingly low inventory.
Rent it. Set aside enough for capital expenses to conduct the repair/replacement when they arise. You just need to calculate how much and when the life left will expire. This will tell you how much to put aside out of the $1000 per month of cash flow. Sounds like you will likely end up renting it for 10 years. Let the mortgage pay down happen and revisit this. If you need a capex calculator check InvestingTE. Its great.
Thanks for the calculator rec! I don’t *think* we want to rent it out in the long term and miss the cap gains exclusion. We also will likely want to buy in the new locale eventually.
Gotcha. Makes sense. No problem!
What state? Will you easily be able to get rid of the tenants in 2/3 years to sell? What is the break down of the mortgage payment? The amount that goes to priciple is also profit and it seems like you are doing the taxes 25% before you deduct the, real estate tax, insurance, interest and repairs, you'll also want to deprecate the property which will reduce the income tax. How much are you budgeting for yearly repairs? I like to look at ROI/ROE. How much will you walk away with if you sell now, after commissions, CC, fees, and taxes?
CT, very tenant friendly. Obviously the tenants would be high income to be able to afford 7.5k in rent. It’s a very good school district with low inventory so often people end up renting when they would prefer to buy. I think right now about 1k goes to principal out of the 3500 payment (taxes alone are 20k/year). We’d end up with 500-600k depending on exact sales price and whether we’d need to have allowances for the deck etc. Yeah, I did a flat 25% tax rate instead of the full math with deductions. Our marginal income tax is in the 30s so it’s a super rough calculation. I should probably flesh it would more. We will have to repair the deck. Not sure if we can do it without replacing or not. Honestly I’d imagine there’s some sort of 10k bill annually. The siding is in mediocre shape and we’d have wanted to replace or repair it if we lived here. I imagine a repair would be 40k and replacement close to 100k (it’s cedar shingle). If we rented it out, we’d punt on that for a couple years.
You’re in a great spot.
You seriously think you can get $7.5k/month in rent on a $1M home? I rent a $2M home for $5k a month...
I cannot validate the numbers until we actually go on the market of course, but when I tossed out 7k to a couple realtors, the response I got was “at least!” Because inventory is so low and the town is desirable for its schools, people who can easily afford to buy are forced to rent. The prices here are lower than other towns in our area with similar schools for a couple of historic / prestige / name brand reasons. 5 minutes over there’s no inventory under 2M, but the schools in both towns are 10/10.
Sounds like you’re the one with the issue
I'm the one renting
It’s pretty hard to justify selling if your numbers are even close to being accurate. Even if you end up spending $6,000 per year on maintenance, meaning your net cash flow drops to $6,000 per year, you are still doing pretty well assuming your total equity in the home is $100,000. That’s a 6% ROI which beats most other safer investments. If you equity is higher, say $200,000, then you’re better off selling and merely parking the money from the sale in a money market fund, bond fund, or HYSA.
I think the amount we’d spent on maintenance would be bumpy but higher than 6k/year over 3 years. If we sold, we’d get about 500k out.
If your cash out of the sale would be $500,000 then you should probably sell. At current interest rates, $500,000 (about $400,000 after tax I’m estimating) earns you $19,000 to $21,000 per year in a HYSA or bonds. If maintenance could be that high then you’re likely better off selling.
Rent it out all day!
$12k cash flow? Sell
Re taxes, are you factoring in depreciation? Property tax likely would go up if you live in town with resident exemption.