Should I Sell or Hold?

[mrmoneymike]

I'd really appreciate any input/advice on this situation.

My fiancé and I currently own single family home on the east side of Seattle (Kirkland/Bothell) area. It is a nice home that would likely sell for 1.4-1.6 million (my equity being 700k-900k). My mortgage is 30 year fixed at 2.875%. We make decent money, we pay our monthly mortgage with 27% of our take home pay.

We want to move from Seattle to be closer to family. If we rented the home could get 3000-4000 per month, which would basically pay the full mortgage and taxes, but it would not have a positive cash flow. But the house is almost certain to continue to appreciate at 5-10% simply because there is no inventory for single family houses in this area and there really isn't any room to build new ones. We are young and not looking to retire for at least 15-20 years.

One consideration I have is that if we sell as our primary residence, we can of course sell with the 500k capital gains exemption. If we move and keep it as a rental, we can no longer claim this. Although I believe we could write off certain things as a rental.

The question I've been asking myself is: Should we keep this property as a rental?

Thank you so much!

[former player]

1.  The cash flow is a loss because you also have to pay someone to manage, allow for voids, pay for repairs, maintenance and upgrades.

2.  Low fee index funds will over time get you a very similar return to the appreciation you mention without the hassle of being a landlord, particularly the hassle of being a landlord from a distance.

3.  Scarcity of supply only matters if you are going to want to live in the area at some point in the future.

If you aren't ever going to want to live in the house again everything points to selling up and moving on.

[mrmoneymike]

This makes sense. Thank you. I'm leaning towards selling especially when I'm banking the 500k tax exemption on primary residence.

[terrifictim]

Sell - take the 500k and enjoy not being a landlord. The only caveat is to make sure you meet IRS purposes for the $500k exemption and don't find yourself limited to $250k.

[Archipelago]

Agree with the others. Definitely a sell on this one.

[JGS1980]

Remember that you can hold on to the property for 3 additional years after moving and still get the 500K Federal Tax Free gains when selling.

https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp

"The 2-in-5-Year Rule
For taxpayers with more than one home, a key point is determining which is the primary residence. The IRS allows the exclusion on only one’s primary residence, but there is some leeway in just which home qualifies. The two-in-five-year rule comes into play. Simply put, this means that during the previous five years, if you lived in a home for a total of two years, or 730 days, that can qualify as your primary residence. The 24 months do not have to be in a particular block of time. However, for married taxpayers filing jointly, each spouse must meet the rule."

If you are holding, this would effective be a bet that Seattle SFH would appreciate at a higher rate than however you choose to invest the equity from a potential sale.

Also, note that the Fed has already said they will increase interest rates multiple times in the next year. Over time, this will decrease the amount that folks can afford to pay for their homes.

Whatever year you decide to sell, make sure to place it in the market in the late spring April/May when housing demand is highest.

[affordablehousing]

Yes make sure you get married first before you sell, at least on paper, to limit taxes.

[mrmoneymike]

Thank you everyone. Selling sounds like the best option. Thank you all! I will update this post with the results later this year..

[Dicey]

Excellent decision. Who knows if this will last? The market could change. Tax rules could change. How often does one get a "free" half mil without experiencing the death of a loved one?
Whoops, missed the "fiance" part. No advice about rushing to wed to save $250k. Paging @SeattleCPA.

[Archipelago]

Also, note that the Fed has already said they will increase interest rates multiple times in the next year. Over time, this will decrease the amount that folks can afford to pay for their homes.

Whatever year you decide to sell, make sure to place it in the market in the late spring April/May when housing demand is highest.

One has to weigh selling now at lower interest rates vs. waiting for interest rates to increase and get less money for the house. I think the general hierarchy of savings for this situation goes like this:

1. Get married to reduce tax burden.

2. Sell as soon as reasonably possible before interest rates are hiked. But it's not important enough to interfere with life plans (i.e. rush into getting married ASAP).

3. FSBO to save on transaction costs. I'd much rather sell direct and save 5-6% in fees than mess around with brokers and a bunch of buyers. Tbh, I've even seen topics around this forum for people looking to buy in Seattle. That's personally where I would start lol. Dealing off market is such a win-win.

[Dicey]

I'd research Redfin or Rex before I'd do a FSBO. Too many scammers out there, IMO.

[Archipelago]

I'd research Redfin or Rex before I'd do a FSBO. Too many scammers out there, IMO.

+1 for Redfin. Haven't heard of Rex.

[mrmoneymike]

I wanted to give everyone who commented an update:

Listing today for 1.45 million. I have 680k left on my mortgage. Should be nice :)

Thanks,
Mike

[travel2020]

Good luck! The market still seems crazy in the area so hopefully you’ll get asking and more. We’ve had a couple of houses in our neighborhood list recently for $1.3M - $1.4M (roughly the Zillow estimate) and each closed at $300k above asking.

[Dicey]

I wanted to give everyone who commented an update:

Listing today for 1.45 million. I have 680k left on my mortgage. Should be nice :)

Thanks,
Mike

Who did you last with?

[Jon Bon]

I'd research Redfin or Rex before I'd do a FSBO. Too many scammers out there, IMO.

What do you mean by this? I have FSBO a few times, its not partially hard and the title company makes sure everything is legit.

[Archipelago]

I'd research Redfin or Rex before I'd do a FSBO. Too many scammers out there, IMO.

What do you mean by this? I have FSBO a few times, its not partially hard and the title company makes sure everything is legit.

Agreed. I've purchased 2 properties off market after working directly with owners and believe it's actually easier than standard purchases and sales through MLS & realtors.

All we needed was our own attorneys and open communication. Pretty much it.