Author Topic: Should we list it or rent it out?  (Read 605 times)

pennyhandlebar

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Should we list it or rent it out?
« on: March 04, 2021, 12:38:19 AM »
Hi all, would really appreciate some insight on what to do with our house. I have a hunch what the smart decision would be, but I need some reinforcement.

The house is close-in on the East Side of Portland OR, in a highly walkable neighborhood about 3 miles from downtown; both Walk Score and Bike Score are 90+. It's an old Craftsman bungalow, 3 bed/1 bath, that has had a lot of work put into it,  both functional (new hot water heater, new furnace, new siding, insulation), and cosmetic (tore out the fugly 1960s dropped ceiling, uncovered/refinished the original hardwoods, new interior trim, new built-ins, etc.).

After refinancing a few times, we have about 25 years left on a 30-year mortgage at 3.875% (I know!), and payments around $1600, of which about $1,250 is principal+interest. We owe about $200k, and a real estate agent told us she'd price the house at $625k if we were to sell it and expect to receive offers above asking price, so let's say the market value might be around $640k or so. The real estate agent also said that she thinks the house is in great shape for listing and doesn't need any fixes / updates / paint freshening, etc.

I got a new job in Seattle, and my wife's work is portable/remote, so we're exploring a move. I would have the option to go remote, but I like the idea of spending at least some time in the office, and no state income tax in WA vs. 10% in OR is also appealing.

Question is what to do with our Portland house. We don't necessarily need to sell it to come up with a down payment on another house, we've put in a lot of blood sweat and tears, and frankly if we sell it, I don't expect to ever be able to buy in a comparable Portland neighborhood again. Property appreciation here (and everywhere, I guess) has been stratospheric, so I can't see how selling the house and putting the roughly $400k proceeds in the market is better financially (at least in the short term) than continuing to enjoy our 11% or so annual appreciation on the full $640k value of the house.

It would likely generate something like $2200-$2400 in rent, but I'd use a property manager, so that would come off the top. If we keep it, we would be waiting for one of two things: 1) an even more ridiculous appreciation over the next year or so such that we just can't justify holding on, or 2) potentially coming back in retirement (hopefully 5-10 years away), and building out a MIL suite, which we would either live in part-time or rent out and live in the rest of the house.

It's the first house we've ever owned and we've never owned a rental before. As suggested above, the house is in better shape than many rentals, so wear and tear from a tenant is a bit of a concern, but on the flip side, I expect we could attract a very good tenant.

Thoughts?

Paper Chaser

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Re: Should we list it or rent it out?
« Reply #1 on: March 04, 2021, 04:35:59 AM »
1) $2400/mo on an asset worth $640k is not good return (Instead of the 1% rule target, you're around .37%). You'd be banking entirely on continued appreciation which is a crap shoot.
2) You'll have about $440k (minus realtor fees) in tax free profit if you sell. That tax free period gets phased out as you no longer live there. Take the free money and put it into something more productive while you can.
3) It's obvious that you care about this place. How comfortable would you be seeing renters slowly (or not so slowly) destroy it? You're probably too emotionally attached to make well reasoned choices on this place as an investment.

These are all very strong "sell" indicators to me.

Dicey

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Re: Should we list it or rent it out?
« Reply #2 on: March 04, 2021, 05:41:45 AM »
You realize that selling this house now could give you close to the max $500k tax-free exemption? Do you have any other way to make that kind of tax-free dough virtually hassle-free? Sell it, enjoy your time in Seattle. Look for another fixer and do it again. Also, you never know when the tax code will become less favorable, but it's likely that it will. There's a pandemic to pay for.

Though I have loved several of the houses I've fixed up, I've never regretted lettipetting get me to the next one.

FWIW, I am also a 20+ year landlord. My vote is to sell asap.

oldladystache

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Re: Should we list it or rent it out?
« Reply #3 on: March 04, 2021, 06:59:20 AM »
Sell.

pennyhandlebar

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Re: Should we list it or rent it out?
« Reply #4 on: March 04, 2021, 07:44:02 AM »
Thanks everyone, I figured that was the right answer - just needed to hear it from someone else. Doesn't hurt that the answer seems to be pretty definitive :-) A lot of our life is wrapped up in these walls, but if letting the house go can get us closer to FIRE, that's a worthwhile trade.

PMJL34

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Re: Should we list it or rent it out?
« Reply #5 on: March 04, 2021, 10:46:14 AM »
Are you sure you want to move move/live in Seattle?

It sounds like you are perfectly happy where you are and can work remotely. You are locked into very affordable PITI.

If you move to Seattle, even with the 400K of proceeds, you may be priced out and/or need to spend significantly more than you are comfortable just to live there.

If the only options are sell or rent, then absolutely sell.

Best of luck!

theoverlook

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Re: Should we list it or rent it out?
« Reply #6 on: March 04, 2021, 11:03:10 AM »
I think the $400k might make a good 20% down payment on an equivalent place in Seattle.

pennyhandlebar

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Re: Should we list it or rent it out?
« Reply #7 on: March 04, 2021, 11:15:11 AM »
I think the $400k might make a good 20% down payment on an equivalent place in Seattle.

The sad thing is I'm not sure if that's humor or not. I've been stalking listings and know the market there is hot, but that's crazy talk!

pennyhandlebar

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Re: Should we list it or rent it out?
« Reply #8 on: March 04, 2021, 11:31:30 AM »
Are you sure you want to move move/live in Seattle?

It sounds like you are perfectly happy where you are and can work remotely. You are locked into very affordable PITI.

If you move to Seattle, even with the 400K of proceeds, you may be priced out and/or need to spend significantly more than you are comfortable just to live there.

If the only options are sell or rent, then absolutely sell.

Best of luck!

Yeah, you put your finger on some of the key emotional factors. Staying full remote post-Covid is an option for my role, and there's a big sense of security with such a cheap mortgage. I looked at rates last week, and we could refi to a 20-year loan and keep the same payment (cutting off 4 years),  or go down to 15-year for a pretty small hike.

Just to complicate things, my company hasn't settled on an approach to in-office work in the future, though we're expecting a new policy soon. It seems likely that some kind of hybrid model is in the offing, which means that I could have a room or a couch close to the office (I have friends in Seattle and should be able to set up a rental pretty readily), spend 2 or 3 days a week there, and WFH the rest of the time. In that case, I could live anywhere within a few hours of Seattle - Bainbridge Island or other islands, Anacortes, Bellingham, etc. Or, of course, Portland...though then my wife and I would still be on the hook for OR income tax.


« Last Edit: March 04, 2021, 11:36:28 AM by pennyhandlebar »

SunnyDays

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Re: Should we list it or rent it out?
« Reply #9 on: March 04, 2021, 02:42:32 PM »
I wouldn’t be in a hurry to sell in your situation.  You might hate your new job.  You could always wait at least 6 months to see if the new job is a keeper, while working remotely and couch surfing as you say.  It would also give you a chance to get familiar with Seattle and decide where you might want to live there (if you can afford it).  If this arrangement is sustainable for 5 years, you could reassess your chances of FIRE at that time and you would still have your Portland home.  Better to make a decision when you feel certain of what you’re doing than acting in haste and regretting it later.

Sandi_k

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Re: Should we list it or rent it out?
« Reply #10 on: March 04, 2021, 07:47:45 PM »
I would rent it for a year. If you hate your new job, or are able to come back to the house and neighborhood you lo e, it will be worth it.

If you love Seattle, you can sell the PDX house next year, and still benefit from the Capital Gains tax exemption, as you will have lived in the house at least 2 of the previous 5 years.

I have seen too many people leave Santa Barbara or the Bay Area, and then they are never able to get back in. Give yourself some time to decide. It doesn't have to be today, or even this year.

mountainfamily

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Re: Should we list it or rent it out?
« Reply #11 on: March 05, 2021, 01:05:18 PM »
We are in a similar situation with our Seattle house (we it fixed up with blood/sweat/tears, and we're strongly contemplating moving to a smaller town 1.5 hours away now that remote work is possible). If it were a purely business-oriented/investment choice, yes, the numbers say sell.

However, there's the unknown format of remote work, the pandemic that is still going, economy being in somewhat interesting times, overheated housing market, not being sure where you want to live, etc. Renting it out for a year or two to give yourselves time to decide, the pandemic to end, etc., may not be a bad idea to consider. Yes, there are always risks to this. There are risks to everything. It's about figuring out what combination of risks and rewards serve you best.

And, unfortunately, much of the $400k proceeds WOULD be your Seattle house down payment if you wanted to buy something nice in a walkable neighborhood that has good access to parks, etc. It's 1.5-2 million for a new build (not that you want that, but just for an example), 1 million for older 3 br/2 baths with some updates, 700-800s for starter homes. And, houses get tons of offers, and the sellers will pick the one with the best financing, or all cash, or the fewest contingencies. Even if you HAVE the money you may not even be able to get a house here right now. Then again, rents are soft so you could probably get a nice rental house for $2500-4000 per month! I'd make sure you really like the job before buying anything here, and make sure you actually like Seattle. It's got some really nice features, but it's also a bit of a mess in other ways.
« Last Edit: March 05, 2021, 03:42:32 PM by mountainfamily »

pennyhandlebar

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Re: Should we list it or rent it out?
« Reply #12 on: March 08, 2021, 11:54:04 PM »
We are in a similar situation with our Seattle house (we it fixed up with blood/sweat/tears, and we're strongly contemplating moving to a smaller town 1.5 hours away now that remote work is possible). If it were a purely business-oriented/investment choice, yes, the numbers say sell.

However, there's the unknown format of remote work, the pandemic that is still going, economy being in somewhat interesting times, overheated housing market, not being sure where you want to live, etc. Renting it out for a year or two to give yourselves time to decide, the pandemic to end, etc., may not be a bad idea to consider. Yes, there are always risks to this. There are risks to everything. It's about figuring out what combination of risks and rewards serve you best.

And, unfortunately, much of the $400k proceeds WOULD be your Seattle house down payment if you wanted to buy something nice in a walkable neighborhood that has good access to parks, etc. It's 1.5-2 million for a new build (not that you want that, but just for an example), 1 million for older 3 br/2 baths with some updates, 700-800s for starter homes. And, houses get tons of offers, and the sellers will pick the one with the best financing, or all cash, or the fewest contingencies. Even if you HAVE the money you may not even be able to get a house here right now. Then again, rents are soft so you could probably get a nice rental house for $2500-4000 per month! I'd make sure you really like the job before buying anything here, and make sure you actually like Seattle. It's got some really nice features, but it's also a bit of a mess in other ways.

Thanks, nice to know that other people are in the same situation! At this point, a lot depends on what my company's policies are going to be once the offices reopen, so there's some wait and see. I've been in the job for close to a year now -- I started post-pandemic -- so the job is great, but I'm a little hesitant about Seattle, both due to cost and the idea that it's likely facing the same challenges as Portland around homelessness and possibly rudderless municipal government. Keeping our powder dry for at least a few months until we find out how my company is going to move forward. Good luck with your own decision!