Sell second house or rent it?

[webguy]

Hey guys, I have a "what would you do" type question.

We are from a northern state but have been living in florida for a few years. We are moving back up north, but aren't 100% sure we will want to stay there. We're about 90% sure, but there's a 10% chance we might want to move back down here again.

We are trying to figure out whether it makes more sense to rent out our house here in florida or just to sell it. Selling it means it would be more difficult, or less likely, for us to move back down here. But in crunching the numbers it isn't really a great rental.

If we rented, then after all expenses we would have a net gain of around $25,000 for the year (after management, taxes, insurance, loan interest, maintenance, etc). After 1 year, we would choose to either sell it, or keep renting it until we move back in.

If we sold, it would probably list for around $950,000 and we'd net around $450,000. If we decided we wanted to move back down then we'd have to rent or buy from out of state, which is always trickier, but the peace of mind of not having a second house down here (especially through hurricane season) would be nice.

The money doesn't really make any meaningful difference to our financial situation at the moment as we are already fat fired without the rent or sale proceeds, but I always like to make the best financial decision either way.

What would you do? Any advice?

[uniwelder]

Given increasing flooding and hurricanes, and home insurance coverage uncertainty, I would sell while you can get top dollar. It sounds like you are in a prime location given your house value.  Otherwise, rent it out for one year to give time to decide.

[Evgenia]

Given all you've said, I would sell.

Coincidentally, we have a (very) wealthy friend cashing out of Florida real estate right now. They're not right on the beach or anything, but they say each storm is worse than the last and there is more water inland (as in, many miles inland) coming up through the ground at high tides and during surges. They fear they won't get top dollar if they wait.

[FINate]

Have you lived in this house for those few years in FL? How much has the home appreciated during your ownership? Are you filing taxes jointly?

[Zamboni]

I'd sell it.

There is always another house if you want to move back down there later. Meanwhile, you can just collect interest on the $450K you bank now (which is waaaay more than $2500 for the year even in a 4% CD).

[Paper Chaser]

You say that it's not a great rental, you don't want to be a long distance landlord, and you can make ~ $450k tax free if you sell.

If you've got enough that a $450k bump doesn't make a meaningful difference, then buying another place if/when you want to return should be no big deal.

Seems pretty clear cut to me. Sell, take the tax free gains, and enjoy your simplified life.

[webguy]

Thanks for all the replies so far, really appreciate it!

Have you lived in this house for those few years in FL? How much has the home appreciated during your ownership? Are you filing taxes jointly?

Yeah we’d avoid the capital gains as we’ve lived here for the last 2-3 years. The gain would be around 300k.

I'd sell it.

There is always another house if you want to move back down there later. Meanwhile, you can just collect interest on the $450K you bank now (which is waaaay more than $2500 for the year even in a 4% CD).

Net rental income would be 20-25,000 not 2,500. 5% in a CD would put us close to breakeven though.

Given increasing flooding and hurricanes, and home insurance coverage uncertainty, I would sell while you can get top dollar. It sounds like you are in a prime location given your house value.  Otherwise, rent it out for one year to give time to decide.

Interesting. That’s been on my mind too. It was difficult for us to get insurance this past year after our provider pulled out of Florida right around the time hurricane Ian hit. It’s hard to know if now is actually a good time to sell or if in a year things would be even better though.

[Dee18]

In these rent or sell questions I think one way to decide is this:  if you did not own a house in Florida and suddenly inherited the $300,000 (or possibly $450,000--not clear to me what your net will be if you sell), would you use it to buy a house in Florida?  If the answer is no, then sell the house. 

[FINate]

Thanks for all the replies so far, really appreciate it!

Have you lived in this house for those few years in FL? How much has the home appreciated during your ownership? Are you filing taxes jointly?

Yeah we’d avoid the capital gains as we’ve lived here for the last 2-3 years. The gain would be around 300k.

Sell it. How often do you have the opportunity to pocket a $300k gain with zero taxes?

[uniwelder]

Thanks for all the replies so far, really appreciate it!

Have you lived in this house for those few years in FL? How much has the home appreciated during your ownership? Are you filing taxes jointly?

Yeah we’d avoid the capital gains as we’ve lived here for the last 2-3 years. The gain would be around 300k.

Sell it. How often do you have the opportunity to pocket a $300k gain with zero taxes?

OP has a valid point that they might only be away for a year, decide its just temporary, and want to move back.  If its a rental for only a year, OP can still sell without paying tax.  I'm personally in favor of staying away from Florida though.

[FINate]

Thanks for all the replies so far, really appreciate it!

Have you lived in this house for those few years in FL? How much has the home appreciated during your ownership? Are you filing taxes jointly?

Yeah we’d avoid the capital gains as we’ve lived here for the last 2-3 years. The gain would be around 300k.

Sell it. How often do you have the opportunity to pocket a $300k gain with zero taxes?

OP has a valid point that they might only be away for a year, decide its just temporary, and want to move back.  If its a rental for only a year, OP can still sell without paying tax.  I'm personally in favor of staying away from Florida though.

If OP really loves the house and wants it as an option if the relocation is temporary then sure, hold onto it for a year. But that's not the sense I get from their post. By the numbers it's not a great rental, and rental property isn't without risk. Someone up thread already mentioned storm risk. There's also the risk of bad renters. Even good renters usually don't take care of a place the same way owners do and a rental with tenant often sells for less than owner occupied (difficult to stage/show, prospective buyers having to get tenants out, etc.). I get the fear of getting priced out of an area, but I also know a lot of people that became accidental landlords when they moved and ended up much worse off than if they had just sold their previous house.

[SweatingInAR]

If OP really loves the house and wants it as an option if the relocation is temporary then sure, hold onto it for a year. But that's not the sense I get from their post. By the numbers it's not a great rental, and rental property isn't without risk. Someone up thread already mentioned storm risk. There's also the risk of bad renters. Even good renters usually don't take care of a place the same way owners do and a rental with tenant often sells for less than owner occupied (difficult to stage/show, prospective buyers having to get tenants out, etc.). I get the fear of getting priced out of an area, but I also know a lot of people that became accidental landlords when they moved and ended up much worse off than if they had just sold their previous house.

This is precisely the mess that happened on my parent's street in coastal Florida. A family wanted the option of moving back to their recently renovated million-dollar home if their out-of-state job relocation didn't work out. They could charge enough rent to cover their mortgage, but it wouldn't have been enough to cover a new mortgage on the same property.

They did manage to evict their tenant after 6 months once they found out about the visible damage to the yard, pool pump, and air conditioner. After the tenants were gone, they inspected and found interior damage to the wall-mounted tv, walls, and flooring. Supposedly, there might have been a bullet hole through the TV and wall! I haven't heard if they plan to fix and sell immediately, or fix and keep empty for a few months while they decide. They are not going to rent it out anymore.

[yachi]

For a 10% chance of moving back, I wouldn't convert a house you love into a not-really-great rental a day's drive away from where you're looking to live.

Beyond the commonly accounted expenses of x% maintenance, management, loan payments, utilities, HOA fees, there are some rental expenses that not everyone realizes exist, namely vacancy expenses, and tenant turnover expenses like paint and flooring repairs.  I noticed you said "loan interest" and not mortgage payment.  I typically include the entire mortgage payment as an expense to make sure the property cash flows.  I'll then include the mortgage payoff as an item on the income side, along with the rent and (sometimes) appreciation.

[clifp]

Sell it. How often do you have the opportunity to pocket a $300k gain with zero taxes?

I'm generally in the keep the real estate side of these questions.  But, in this case, I'm firmly in the sell camp.  The 500K homeowner exclusion on capital gains is one of my favorite reason that everyone should own their own home. The sooner you sell, the quicker you can start the clock on the new property you buy in the North.

[webguy]

Thanks everyone. We’ve decided to move ahead with selling the house based on all considerations. Really appreciate your input and perspectives.

[firemane]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

[FINate]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

I have no opinion on Florida specifically. I'm simply bearish on bad rentals and RE speculation.

[uniwelder]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

Yes, home insurance crisis, increasing flooding, increasing hurricane damage, and saltwater infiltration.  I wouldn't recommend owning a home near the coast given these conditions that will increase in severity as time goes on.  OP didn't mention where they were in Florida, but since their house is in the 1 million dollar range, I assumed they were along the coast, rather than inland. 

It sounds a little weird to compare two coastal Florida cities against each other in terms of hurricane risk.  Plenty of hurricanes pass both areas, so even if the storm itself doesn't tear off your roof, flooding affects huge areas.  Just recently there was 26" of rain over a 24hr hour period in Fort Lauderdale.  In 70 years, both cities you mention will have large areas of unlivable territory, which are generally the most expensive today.  If I owned real estate in a place where values are certain to plummet (maybe not in the next year, but within my lifetime), I'd prefer to sell high.

[uniwelder]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

I have no opinion on Florida specifically. I'm simply bearish on bad rentals and RE speculation.

As the OP of this particular thread, you might not have an opinion of Florida, but of cities along the coast--  https://forum.mrmoneymustache.com/real-estate-and-landlording/america's-coastal-cities-are-a-hidden-time-bomb/msg3116353/#msg3116353

[firemane]

Ty, I will have to give that a read

[FINate]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

I have no opinion on Florida specifically. I'm simply bearish on bad rentals and RE speculation.

As the OP of this particular thread, you might not have an opinion of Florida, but of cities along the coast--  https://forum.mrmoneymustache.com/real-estate-and-landlording/america's-coastal-cities-are-a-hidden-time-bomb/msg3116353/#msg3116353

I'm also not a fan of simplistic characterizations of places. Yes, there are terrible places to build/buy homes in FL, but also plenty of locations that are fine. The difference between a home in danger to climate change vs one that's mostly safe can be as little as a few hundred yards or tens of feet of elevation. None of this is unique to FL.

[uniwelder]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

I have no opinion on Florida specifically. I'm simply bearish on bad rentals and RE speculation.

As the OP of this particular thread, you might not have an opinion of Florida, but of cities along the coast--  https://forum.mrmoneymustache.com/real-estate-and-landlording/america's-coastal-cities-are-a-hidden-time-bomb/msg3116353/#msg3116353

I'm also not a fan of simplistic characterizations of places. Yes, there are terrible places to build/buy homes in FL, but also plenty of locations that are fine. The difference between a home in danger to climate change vs one that's mostly safe can be as little as a few hundred yards or tens of feet of elevation. None of this is unique to FL.

Certainly there are plenty of other places in danger, but few as vastly affected as Florida.  In 70 years, a third of the state is expected to be underwater, which is where 3/4 of the population currently lives.  As a state, Florida is unique in this aspect.

[FINate]

Good luck with your sale.

I am curious why everyone is so bearish on Florida In This thread and others. Is it due to the insurance crisis and potential increase to hoa reserve requirements, or something else? Are you treating all of Florida the same (for example, Jacksonville is far less prone to hurricanes than Ft. Meyers).

Note, this is not directed at the OPs situation, I just thought it was an opportunity to gain some insight.

I have no opinion on Florida specifically. I'm simply bearish on bad rentals and RE speculation.

As the OP of this particular thread, you might not have an opinion of Florida, but of cities along the coast--  https://forum.mrmoneymustache.com/real-estate-and-landlording/america's-coastal-cities-are-a-hidden-time-bomb/msg3116353/#msg3116353

I'm also not a fan of simplistic characterizations of places. Yes, there are terrible places to build/buy homes in FL, but also plenty of locations that are fine. The difference between a home in danger to climate change vs one that's mostly safe can be as little as a few hundred yards or tens of feet of elevation. None of this is unique to FL.

Certainly there are plenty of other places in danger, but few as vastly affected as Florida.  In 70 years, a third of the state is expected to be underwater, which is where 3/4 of the population currently lives.  As a state, Florida is unique in this aspect.

Sure, but none of that really matters if you're in a part of the state safe from sea level rise. As has been pointed out in that other thread I started, property values in these areas may in fact benefit as the population is forced further inland. Would I buy ocean front property in FL? No. But this isn't specific to FL. Would I worry about an inland city like Tallahassee? Probably not. I'm not super familiar with climate change predictions for this area so I would research more before actually buying.

Which is why I don't have an opinion on FL in general w.r.t. climate change. Per the topic of this thread, my objection is just that it's not a good rental property.

[firemane]

The reason I compared Jacksonville to ft meyers is due to significantly milder storms.

However, if developers keep building ocean front properties in south/west Florida  and run the insurance companies out of the state, I could see it still being a concern to investors anywhere in the state

[FINate]

The reason I compared Jacksonville to ft meyers is due to significantly milder storms.

However, if developers keep building ocean front properties in south/west Florida  and run the insurance companies out of the state, I could see it still being a concern to investors anywhere in the state

This shouldn't be a problem *if* the state allows insurance premiums on coastal homes to increase to reflect increased risk. But this is a big if because this is politically unpopular as premiums skyrocket, people are priced out of prized homes, and property values crash. The state will be under immense pressure to subsidize at risk homes and/or artificially restrain prices (e.g. as CA is doing w/ fire coverage). 

[firemane]

The reason I compared Jacksonville to ft meyers is due to significantly milder storms.

However, if developers keep building ocean front properties in south/west Florida  and run the insurance companies out of the state, I could see it still being a concern to investors anywhere in the state

This shouldn't be a problem *if* the state allows insurance premiums on coastal homes to increase to reflect increased risk. But this is a big if because this is politically unpopular as premiums skyrocket, people are priced out of prized homes, and property values crash. The state will be under immense pressure to subsidize at risk homes and/or artificially restrain prices (e.g. as CA is doing w/ fire coverage).

I wonder how many politicians own said high risk coastal homes

[FINate]

The reason I compared Jacksonville to ft meyers is due to significantly milder storms.

However, if developers keep building ocean front properties in south/west Florida  and run the insurance companies out of the state, I could see it still being a concern to investors anywhere in the state

This shouldn't be a problem *if* the state allows insurance premiums on coastal homes to increase to reflect increased risk. But this is a big if because this is politically unpopular as premiums skyrocket, people are priced out of prized homes, and property values crash. The state will be under immense pressure to subsidize at risk homes and/or artificially restrain prices (e.g. as CA is doing w/ fire coverage).

I wonder how many politicians own said high risk coastal homes

Probably around the same number that have expensive homes in areas at risk of catastrophic fire, such as Lake Tahoe and other pricey mountain resort towns. I don't have a lot of confidence that politicians from either party will make difficult decisions for the long-term.