A townhouse bought 4 years ago by mu husband, before our marriage. We recently bought a larger new house because we plan to expand our family. We will move in to the new house soon, and we are wondering which market the old one should go.
The townhouse is a 2b1b in the heart of bay area. The housing price is crazy here. Here's the info:
Market value: 500k - 600k (our neighbor with the same floor plan sold for around 550k last summer)
Purchase price: 320k
Current mortgage: 15yrs fix @ 2.75%. around 220k remaining
We pay $2300 every month including mortgage + hoa + property tax
According to zillow, the rental price will range $1900 - $2900
It is close to many major employers, so we think it would be easy to rent it out.
some information about my family:
Me 27. husband 35. Both engineers. No kids yet but plan to have soon. high tax bucket.
We can afford to keep this townhouse in vacant in the worst case. The two loan (plus property tax, hoa, insurance, etc) together will be about 40% of our take home pay. Last year, our take home saving rate is 58%. (health insurance, fsa, 401k, life insurance is deducted from paycheck so not considered in take home pay)
If we want to keep this townhouse, we may refi it into 20years or 30years or pay down the mortgage to have cash flow.
After the downpayment of our new house, we do not have much liquid at hand now, around 100k - 150k. (well, I know I bought an expensive house but bayarea house IS crazy...)
My instinct is to sell the house, but my husband though rent may be better. I thought it's hard to manage the rental. Also, if we sell, we can get about 300k, which may generate more cashflow than the rental.
My husband thought, if one day we cannot afford the new house, or want to downgrade our living, our old one would be a nice choice. Also, the old town house is less than 2 miles away from our new house, so not a big deal to manage the new one. In addition, we both have parents or siblings living in another country. If they would love to move to the US, we can offer them our old town house to live.
My question is, just from financial prospective, which one is better? Is it possible for us to rent it out for 3 years and then sell but also claim the full capital gain without tax, because we live there as our primary residence for 2years in the past 5 years? How does tax work for the rental in our case? Thank you.