Author Topic: Sell or Rent? - Seattle  (Read 1532 times)

eva1234

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Sell or Rent? - Seattle
« on: March 11, 2019, 02:42:03 PM »
My husband and I recently moved our family to Montana from Seattle. We rented out the house we own in Seattle and have decent renters (very low-maintenance). But they will likely be moving out soon, and we know the deadline for selling without paying taxes on the profit is approaching (2020).

We're not full Mustachians but we are working on lowering our spending. Ideally we would like to own more rental properties to supplement our income, with the goal of eventually replacing one or both FT job incomes.

To me, it seems as if the amount of capital we have tied up in this house isn't working as hard for us as it could. We know it's a low "cap rate." But for the past few years, the house value has been appreciating about 8% per year. How do we balance cap rate vs appreciation?

Whenever we ask people for advice they say that renting the house out should be giving us a tax benefit (which we haven't seen? maybe our incomes are too high?) and/or that we would be crazy to sell an almost-paid-off house in Seattle. But we are 99% sure we won't ever move back there full-time.

Market Value: $900,000
Original Purchase price: $495,000
Original Mortgage Amount: $220,000 (refinanced 2013)
Interest Rate: 2.6%
Mortgage Term: 15 year fixed
Term remaining: 8 years
Amount remaining on mortgage: $128,000
Gross Rents: $2800/mo
Principal and Interest (the P&I of your PITI - should match with the above info): $1473
Taxes and Insurance (the T&I of your PITI): $899
HOA costs: None
Deferred maintenance notes: The house will need a new roof soon
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.): None

What do Mustachians think - does it make more sense to sell, and purchase other rental properties that have better cap rates? Or refinance (take money out but keep the house) and buy other properties? What would you do and why? (Suggestions for research resources also appreciated.) Thank you! :)

terrifictim

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Re: Sell or Rent? - Seattle
« Reply #1 on: March 11, 2019, 04:41:04 PM »
In most cases I would want to know about the rest of your situation (other investments, plans for retirement, etc.) before making a recommendation but this screams no-brainer.

If your amounts are correct you're earning $400 a month gross without accounting for vacancy, expenses, etc. which probably means you're neutral to cash flow negative. Good rentals have a rent to purchase price of 1% - even at the original price this would be a low performing rental and now it's less of one. Especially with the cost of a new roof coming up - that's a major cap expense that will decimate your rental profit.

Take the 500k of free profit and accelerate the rest of your plans. You can either invest it and get $20,000 /yr for life or do a 1031 conversion and get much better renting property(ies).

This forum is slightly more skewed towards Stock Market Investing, for real estate start with biggerpockets.com


waltworks

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Re: Sell or Rent? - Seattle
« Reply #2 on: March 11, 2019, 08:51:05 PM »
You should sell it ASAP.

The Seattle market *might* keep appreciating forever... but inventory is way up and sales are way down. I wouldn't personally bet on it - and you'd need a LOT of appreciation to balance out the massive capital gains hit you'll take for holding onto it and selling later.

-W

fixie

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Re: Sell or Rent? - Seattle
« Reply #3 on: March 11, 2019, 09:43:09 PM »
Pardon me but what is this reference to the 2020 deadline?

waltworks

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Re: Sell or Rent? - Seattle
« Reply #4 on: March 11, 2019, 10:50:28 PM »
Pardon me but what is this reference to the 2020 deadline?

That is presumably when their capital gains/owner occupied exemption will run out.

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Papa bear

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Re: Sell or Rent? - Seattle
« Reply #5 on: March 12, 2019, 08:05:31 AM »
Sell it. Sell it. Sell it.

Tax free gains?  Take it!!!  You won’t get that anywhere else.

It’s a terrible rental but you made a TON on appreciation!  Good job!  Get that money! Woo!!!




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kenmoremmm

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Re: Sell or Rent? - Seattle
« Reply #6 on: March 12, 2019, 12:47:13 PM »
sell, no doubt. and don't rent it or at least don't claim your rental income.

congrats on montana. i'm sure wherever it is, it feels like magic compared to the shithole that seattle has become

tralfamadorian

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Re: Sell or Rent? - Seattle
« Reply #7 on: March 12, 2019, 04:13:01 PM »
Joining the choir to say sell ASAP! Seattle prices are dropping in some areas/price points and the numbers are strongly in favor of taking your tax free gains.

fixie

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Re: Sell or Rent? - Seattle
« Reply #8 on: March 12, 2019, 06:12:46 PM »
Yes Seattle HAS become a poophole since I moved here 21 years ago.  I have also been thinking of selling this spring or asap this year, before the next correction.  Questions for those of you in the know:
House: ~710k value
     Purchased 2010 for 250k...polished the turd for 9 years
     About 169k left in mortgage
     Maybe clear ~500k all said and done.
I've put in a ton of nice improvements ...appliances, HW floors, furnace, full bath, yard improvements etc and kept receipts...lived here the whole time.
Q:  should I count up the $ amount in improvements for any reason?
Q: are there capital gains taxes?(my guess is no)
Q: I chafe at paying realtors but I'd be a total noob at selling it myself...just how easy is it to sell yourself?
Thx in advance for any insights...
-fixie

waltworks

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Re: Sell or Rent? - Seattle
« Reply #9 on: March 12, 2019, 06:29:21 PM »
Yes Seattle HAS become a poophole since I moved here 21 years ago.  I have also been thinking of selling this spring or asap this year, before the next correction.  Questions for those of you in the know:
House: ~710k value
     Purchased 2010 for 250k...polished the turd for 9 years
     About 169k left in mortgage
     Maybe clear ~500k all said and done.
I've put in a ton of nice improvements ...appliances, HW floors, furnace, full bath, yard improvements etc and kept receipts...lived here the whole time.
Q:  should I count up the $ amount in improvements for any reason?
Q: are there capital gains taxes?(my guess is no)
Q: I chafe at paying realtors but I'd be a total noob at selling it myself...just how easy is it to sell yourself?
Thx in advance for any insights...
-fixie

You should probably start a separate thread but:
-Unless your gains will be >$250,000 (if you're single) or $500,000 (if your spouse/partner is co-owner) after your selling expenses, you should not worry about your home improvement spending, as there will be no capital gains tax due.
-Selling the house is easy. Selling it for *market price* can be a bit trickier. Remember that you'll pay 2 or more likely 3% to the buyer's agent even if you're representing yourself. FSBO is deserving of a whole thread of it's own. If you're asking these questions you *probably* should just hire an agent.

-W

tralfamadorian

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Re: Sell or Rent? - Seattle
« Reply #10 on: March 12, 2019, 06:41:03 PM »
Yes Seattle HAS become a poophole since I moved here 21 years ago.  I have also been thinking of selling this spring or asap this year, before the next correction.  Questions for those of you in the know:
House: ~710k value
     Purchased 2010 for 250k...polished the turd for 9 years
     About 169k left in mortgage
     Maybe clear ~500k all said and done.
I've put in a ton of nice improvements ...appliances, HW floors, furnace, full bath, yard improvements etc and kept receipts...lived here the whole time.
Q:  should I count up the $ amount in improvements for any reason?
Q: are there capital gains taxes?(my guess is no)
Q: I chafe at paying realtors but I'd be a total noob at selling it myself...just how easy is it to sell yourself?
Thx in advance for any insights...
-fixie

If you are married, then you can take $500k in gains. If you are not or think your gains may be over $500k, then yes, you can use the receipts for your accountant to raise the basis in the house to minimize or eliminate the capital gains.

When the market is red hot, it's easy to sell yourself. In a declining market, you can end up losing more in sales price than the realtor's fee by not listing at the correct price (too high or too low), advertising well (photographer, staging), etc.

I don't know the Seattle market intimately so I can't tell you where your property's micro-market is on the spectrum right now.

kenmoremmm

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Re: Sell or Rent? - Seattle
« Reply #11 on: March 12, 2019, 09:51:09 PM »
i follow seattlebubble quite closely. depending on your bias, you can find a narrative to fit your desires. based on my reading, sense of the market, and sense of the global factors (interest rates), i opted to sell a townhouse in may 2018 (the peak frenzy period). townhouse was bought at previous peak in late 2006 for $373k. listed at $675k. sold for $790k. i suspect were i to try and sell that now, it might get into the mid 600s - might.

similarly, we have a condo near downtown. per a realtor i trust, he thought it was around $380k late last year (before the bad news came in) without any repairs. now i suspect it would take $10k in renovation and still not break the $300k mark.

i think this next month sales/inventory will define the market for the year. if it goes gangbusters, then there's a chance it'll be a neutral year for sellers. but, given other markets nationally (SF, las vegas, and other bubbly places), i don't see that happening. so, get out while you can???

fixie

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Re: Sell or Rent? - Seattle
« Reply #12 on: March 12, 2019, 10:08:06 PM »
i follow seattlebubble quite closely. depending on your bias, you can find a narrative to fit your desires. based on my reading, sense of the market, and sense of the global factors (interest rates), i opted to sell a townhouse in may 2018 (the peak frenzy period). townhouse was bought at previous peak in late 2006 for $373k. listed at $675k. sold for $790k. i suspect were i to try and sell that now, it might get into the mid 600s - might.

similarly, we have a condo near downtown. per a realtor i trust, he thought it was around $380k late last year (before the bad news came in) without any repairs. now i suspect it would take $10k in renovation and still not break the $300k mark.

i think this next month sales/inventory will define the market for the year. if it goes gangbusters, then there's a chance it'll be a neutral year for sellers. but, given other markets nationally (SF, las vegas, and other bubbly places), i don't see that happening. so, get out while you can???
Thanks...been thinking the same thing.  Wasn't in a position to sell last year  but I do think it prudent to get out now...

FIFoFum

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Re: Sell or Rent? - Seattle
« Reply #13 on: March 13, 2019, 12:02:17 PM »
Would you buy it today at the current market price (the one you can realistically get now) to rent it out at that rate and/or hold on for the future prospect of moving back in? I'm guessing NO WAY.

Then sell now. Especially before tax hit.

Tom Severston

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Re: Sell or Rent? - Seattle
« Reply #14 on: March 14, 2019, 02:39:13 AM »
I think the more rental properties you have the better. Try to refinance.

Mustache ride

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Re: Sell or Rent? - Seattle
« Reply #15 on: March 16, 2019, 09:20:16 AM »
I think the more rental properties you have the better. Try to refinance.

You must be a realtor or lender...

Seadog

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Re: Sell or Rent? - Seattle
« Reply #16 on: March 16, 2019, 04:37:03 PM »
I think the more rental properties you have the better. Try to refinance.

Care to elaborate? I have friends who thought the same thing in 2007 and ended up getting wiped out to the tune of hundreds of k, and eventually going bankrupt....

srad

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Re: Sell or Rent? - Seattle
« Reply #17 on: March 18, 2019, 11:08:16 AM »
2800 seems low for rent on a home with a 900k value.  You sure you cant pull over 4k a month for this one?  Regardless, this is a sell.  If you have no desire to move back (ie live in it again) i don't see why you'd want to keep it, you've had a massive run up in appreciation, will it double again? sure maybe. But being able take 500k tax free right now is kind of a big deal.. 

And we don't even need to discuss the political climate towards landlords in our area (I'm in Portland).  Oregon now has rent control, Washington probably isn't far behind and at the very least, they hate landlords just as much - get out.

ericrugiero

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Re: Sell or Rent? - Seattle
« Reply #18 on: March 18, 2019, 12:30:35 PM »
You could sell for $900,000 which leaves $772,000 after you pay off the mortgage.  (Or a little less after commissions)

If you invest that in the market the 4% rule says you can pull out $2573 per month.  That is more than you will make each month even after the mortgage is paid off.  (Still have to pay Tax & Ins)  Plus, there are no ongoing maintenance costs, vacancies, headaches, etc.  The 2020 deadline just makes it even more clear because you want to lock in those gains before you lose the exemption. 

I'd definitely sell and either invest in mutual funds or other houses in your new location. 

washingtonian

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Re: Sell or Rent? - Seattle
« Reply #19 on: March 19, 2019, 11:16:25 PM »
Things to consider
If you sell - 6% to agents, 1.78% excise tax to state, likely some cost to freshen up house, IRS depreciation recapture

If you hold - crazy low interest rate, property will be paid off in 8 years, Seattle appreciation and rent increases are likely to continue to be substantial long term

You write you haven't seen tax benefits. You should be deducting everything you can including mortgage interest, property taxes, insurance premiums, repairs, and depreciation. If you have not been using these deductions you should file amended returns to get back the tax you overpaid

The 500k tax free gain is a big consideration and if you can sell and make a great investment with the proceeds that would be a very good idea. But I'm a landlord in Seattle and have seen the price and rent gains climb so much over the past 20 years, much more than any other investment I've ever made. If I was comfortable financially keeping the house that's what I would do.