Sell house for 100% profit?

[El TD]

Hello everybody,
My wife and I were lucky enough to buy a house in the Bay Area in a short sale. We got a ~1500 sq. ft. duplex for $400K and converted it to a single family home (after renting out on half for the first 18 months). Now smaller houses on our block are selling for 700-800K and the thought of making over 100% profit is increasingly tempting.

However, if we sell the house, we'd need a place to live. Renting in the Bay Area is almost as ridiculous as buying, especially for places large enough for our family of four. So, the only option seems to be that we buy in a lower COL and less-crazy real estate market. However, we have friends and family connections here (very useful for childcare, among other things).

We could also rent the house out for ~$3000/month. That would bring in at least $1500/month in profit. But, again, we'd need a place to live.

What's the mustachian way to approach about this? I know MMM might suggest just ignoring the ups and downs of the real estate market. Is that it? Or should we think about how to use the house to set up our 'stache (which is in between 150 and 200K at the moment)?

Thanks!
-El TD

[fishnfool]

It sure is tempting!

We're in the same position with our Santa Cruz county house worth more the double what we paid. When the market was going crazy in 2005 it trippled in value. Still kind of sorry I didn't sell then but just wasn't ready. I don't see this housing market going bust like it did back then, but it will slow down.
People need a place to live and rents are going through the roof!

We're gonna stay put till retirement in 4 years. You probably should too until your ready to move out of the bay area.

[GrowingTheGreen]

As long as you want to remain in the SFO area, hang onto it -- at least until the house appreciates another $200k or so.

And when will that be? :)

[onlykelsey]

As long as you want to remain in the SFO area, hang onto it -- at least until the house appreciates another $200k or so.

And when will that be? :)

Yeah, and it may do the opposite.  No one can predict the future, but I totally understand the desire to lock in gains when valuation is so high (and so uncertain). If you need to stay in the SFO area in order to keep your earnings high (I understand, as a Manhattanite), it seems like it makes sense to sit on and stash obsessively.  If you don't, I'd be inclined to lock in the gains and sell and relocate.  Selling and renting instead sounds like it might not make sense, but there are rent v. buy calculators for you if you want to play with numbers.

[CashFlowDiaries]

I agree, the only real way to take full advantage of the equity would be to use the money and buy a house all cash in a cheaper cost of living area.   You could easily buy a nice 300k home in other cool areas like Austin, then have a mortgage free life.

[El TD]

Thanks, all. It's pretty much in line with our thinking, but it's reassuring to hear confirmation that we're coming at it from the right direction. And, thanks lhamo for the reminder about the $500k capital gains exclusion limit.

Cheers,
El TD

[clarkfan1979]

The MMM move would have been to keep it a duplex. If it's worth more as a single family home, you would do that right before you sell and move. It's cool that it has appreciated 100%, but it doesn't really do anything for you unless you move to a different area (renting or selling). In order to know if that's worth it to move, you would need to discuss income.

I had a similar situation. I have a house in Florida that has appreciated 100% in the last 4.5 years. I bought it for 95K and I could probably sell it today for about 210K. However, when I was living in the house, that didn't really do anything for me. Now that we moved to a different area we rent the house for $1700/month and the mortgage with taxes & insurance is $665/month. We could sell and use for a down payment on a new house in our new location. However, we will most likely wait 3 years until we can come up with the cash for a down payment. Some of that cash will come from the rental cash flow. If you want to build wealth, focus on buying assets and try to avoid selling them.