Planning a move - Sell or Rent Primary

[BiggerFishToFI]

We are planning a move either Fall '23 or Spring '24 and are trying to decide to sell or rent our current primary.

If the market was like it was a year ago, we would most likely sell. But with falling valuations and our low interest rate mortgage, renting is tempting and may be the best diversification play. Or maybe selling and harvesting the tax free gains / putting a larger down payment on the new house would be better. We would likely use a property manager instead of managing it ourselves as our new location is ~5 hour drive away.

We have no other rentals and ~1.1MM in equities.

Current House / Potential Rental:
3BR/2Bath, 1 car attached and 2 car detached garage. Built in 1952, in good shape but has old bones. Market is a very strong rental market, location is near city center in rapidly growing city of ~500k population. Will be a ~5 hour drive from new town.
Value: ~$450k (Zestimate 484k-546k) Hard to value in a falling market
Mortgage: $271k remaining, P&I $1139/month, 2.75%, 28.5 years
Taxes: $1500/year
Insurance: $1000/year
Rent Range: $2200-$2800
Cash Flow (assume 70% rents for vacancy, capex and mgmt): $2500*12*0.7 - $1139*12 - $1500 - $1000 = $4,832 / year = $402 / month

New House
Targeting < $750k, but town we are moving to is expensive with limited availability. May rent for a year or may purchase this fall depending on real estate climate.

Looking at the cashflow it seems lean, but with the 2.75% mortgage, strong rental market and no other real estate in our growing portfolio I'm torn on the right play.

Any thoughts or issues with my reasoning? Thanks in advance.

[PMJL34]

I don't agree w 30% of rental income going to vacancy, capex, and management when it's a good home in a "very strong" rental market. I get you are trying to be conservative, but that's too much for my taste. I calculate 10k profit @ 2500/month rent with 10% to property management. Subtract vacancy and capex which I'd wildly guesstimate at 3k. That's 7k/y profit to keep it.

180k of equity spitting off 7k is right around 4%/year.

2200-2800 is too wide of a range for your rental. For example, at 2800, I'd lean heavily towards keeping/renting it out and opposite for 2200. Be more specific about it's value.

How much is your income? If it's above 200k, I'd just sell for simplicity unless you want a rental.  If you think you'd ever move back, won't be the worst to rent it out for a year as well. As you know you also can sell tax free for the next 2 years.

Best of luck!

[clarkfan1979]

I don't agree w 30% of rental income going to vacancy, capex, and management when it's a good home in a "very strong" rental market. I get you are trying to be conservative, but that's too much for my taste. I calculate 10k profit @ 2500/month rent with 10% to property management. Subtract vacancy and capex which I'd wildly guesstimate at 3k. That's 7k/y profit to keep it.

180k of equity spitting off 7k is right around 4%/year.

2200-2800 is too wide of a range for your rental. For example, at 2800, I'd lean heavily towards keeping/renting it out and opposite for 2200. Be more specific about it's value.

How much is your income? If it's above 200k, I'd just sell for simplicity unless you want a rental.  If you think you'd ever move back, won't be the worst to rent it out for a year as well. As you know you also can sell tax free for the next 2 years.

Best of luck!

I agree with @PMJL34 that your income probably matters. Is it worth your time?

I'm a college prof that makes 57K/year. For me, I would keep it. It's worth my time and my primary vehicle for building wealth.

Other people on this forum have high tech salaries. It might be better for them to sell and focus on their high paying job to build wealth.

Your property taxes are super low! Good luck.

[Paper Chaser]

Like home prices, rising rents are also seeing aggressive slow downs in many markets:

https://www.redfin.com/news/redfin-rental-report-november-2022/



I think you'll have to wait a bit to see what the markets are like closer to your estimated move. That will tell you how much you could sell your current home for, what the new home might cost, and what you might get in rent for the current place.

It's a turbulent time, and the rate of change for these variables is pretty high so it's difficult to forecast 6-12 months out. Like others have stated, a few thousand in selling price, or a few hundred per month in rental income can make or break this calculation. Are your property tax estimates based on this being your primary residence? Will that change if it's an investment property? (In my state, investment properties are taxed at double the rate of a primary residence).

Lots of big banks, etc are also predicting a recession of some type this year. The Federal Reserve has openly stated they want to cool off the labor market and the real estate markets at the same time to try and get inflation back in check. Their goal is to have prices and rents drop while simultaneously increasing unemployment. It might get ugly. Or it might not. But the stability that we've enjoyed in recent years is likely gone for the next few months and that's probably going to impact your decision making here.

Personally, I'm typically on team "Sell rather than rent". Take any equity gain that you've had and cash it out tax free while you can. Use that equity as down payment for the new place so you finance a smaller amount at current high interest rates. What's the point in keeping a 3% mortgage on a rental if it means you have to finance more at 6% for the more expensive new place?

[BiggerFishToFI]

Thanks for the input, leaning much more towards selling now. We will see what the next 6-12 months bring

Our HHI is ~$290k plus 30-40k of dividends from our portfolio, matching contributions etc.

Plus we had our first child recently... and simplicity seems very attractive over the next few years.

Anybody have thoughts or resources on diversifying through REITs? We are currently 70/20/10 US Equities/International Equities/Bonds on a 1.1MM portfolio. Would place these somewhere other than taxable - does placing them in a Roth or a pre-tax account make more sense?