We're moving: sell or rent my house?

[Healthie]

I bought my house in 2018 for 200k and it's been significantly renovated, including a brand-new basement. I refinanced in November 2021 and the house was assessed at 297k. I was planning on keeping it as a rental, as there are not many 4-bed, 2-bath houses, and the ones available rent for $2000+. My other investment is VEQT; which I decided to buy when I realized buying a house as a rental property really wasn't a good option anymore. This ETF has gone down 6-7% since I bought. I live in a working town; as far as I can tell most people with a good head on their shoulders can afford to buy property, so I'm assuming the market for renting this house would be a young family who plans on buying their own home in a few years down the road. With that said, there is definitely demand for rentals and the price has gone up the past year.

I'm reading the reviews of the available property management companies and they vary a lot. I just want to set it and forget it.

What calculations would you recommend running in comparing keeping my house as a rental vs. selling and buying more ETFs?


I will likely not need the money from the sale, if I sell, for my next place.

[waltworks]

There's a sticky at the top of the RE forum about how to post this question, go read it.

-W

[Dicey]

And please don't yell at us. That huge font + bold is unnecessary, obnoxious too much.

[PMJL34]

lol

[Healthie]

thanks for the link! The bold was meant to act as a tl;dr, not intending aggression! When I have some time I'll write something up.

[SeattleCPA]

I don't know how much tax the Section 121 exclusion would save you. Because while you bought for $200K-ish and think you can sell for $300K-ish, the $100K increase in value is partly explained by improvements.

But that qualification made, I would think carefully about renting a house you can use Section 121 on to avoid a big tax bill.

Section 121 is the loophole that says if you own and live in a house as a primary residence for at least two of last five years, you can exclude $250K of gain if you're single or $500K of gain if you're married.

You see people miss this opportunity all the time.

If the transaction costs are low enough it almost makes sense to sell the home you can exclude gain on and then buy the same home next door.

[Healthie]

I don't know how much tax the Section 121 exclusion would save you. Because while you bought for $200K-ish and think you can sell for $300K-ish, the $100K increase in value is partly explained by improvements.

But that qualification made, I would think carefully about renting a house you can use Section 121 on to avoid a big tax bill.

Section 121 is the loophole that says if you own and live in a house as a primary residence for at least two of last five years, you can exclude $250K of gain if you're single or $500K of gain if you're married.

You see people miss this opportunity all the time.

If the transaction costs are low enough it almost makes sense to sell the home you can exclude gain on and then buy the same home next door.

I'm in Canada, I'm guessing by your username this is only true in the States?

[rockeTree]

If you want to set it and forget it it is unlikely that you will find this house anything but a low-earning chore. I made this mistake in 2011 and am only managing to unwind the last bits of hassle this year!

[Healthie]

If you want to set it and forget it it is unlikely that you will find this house anything but a low-earning chore. I made this mistake in 2011 and am only managing to unwind the last bits of hassle this year!

My place was $200k, I've probably put 20k into it, was recently assessed at 300kish (bought in summer of 2018). My mortgage payments are $8XX; a property manager thinks I can get $2,000/month; tenant pays the utilities. As well, I'm in British Columbia and every major city's housing market is warm to insanely hot in this province. This sounds pretty good to me, if going by the 1% rule this about hits it - any thoughts on these numbers or other things I should consider?

[waltworks]

If you want to set it and forget it it is unlikely that you will find this house anything but a low-earning chore. I made this mistake in 2011 and am only managing to unwind the last bits of hassle this year!

My place was $200k, I've probably put 20k into it, was recently assessed at 300kish (bought in summer of 2018). My mortgage payments are $8XX; a property manager thinks I can get $2,000/month; tenant pays the utilities. As well, I'm in British Columbia and every major city's housing market is warm to insanely hot in this province. This sounds pretty good to me, if going by the 1% rule this about hits it - any thoughts on these numbers or other things I should consider?

Dude, if you're not detail-oriented enough to read/post a proper RE case study, you're hosed as a landlord.

That said, you may do just fine in the medium/long term if housing prices keep spiraling up.

-W

[rockeTree]

Yeah counting on appreciation at high rates is gambling but plenty of people win and that could certainly be you.

I was more commenting on the "set and forget" plan - IME even with a property manager stuff comes up all the time that you have to deal with and make decisions about. Maybe this is different in Canada or in your market more narrowly; here I think property managers are interested in minimizing their liability and so want the owner to make the call on a lot of repairs, replacements, selecting tenants, etc. And finding a decent property manager at any but the high end of the market is very hard where I live.

But wouldn't the 1% rule mean that if you can't rent a 300k house for ~3k/month you would be better to sell it?