I currently own a home in Denver, CO. We bought it in 2013 for ~$220,000. Today, Zillow puts it at $340k which is probably a little high but it will probably be about $350k by the time we want to sell. It currently rents for $1825/month. After management fees, it cashflows about $600/month.
It doesn't meet even the 1% rule but the appreciation has obviously been really nice. We gained about $20k in appreciation last year alone.
We lived in it until May 2016 and then started renting it out. We have no interest in living in that house again.
This is coming up now because of the primary residence exclusion from capital gains. For that, we need to have lived in it for "2 of the past 5 years." So come May 2019, we need to either be living in it or have it sold otherwise we'll owe capital gains taxes on the ~$100k in gains after transaction costs.
So if I sell, I get the >$15k in tax savings, but I might miss out on another $20k of appreciation.
I guess it's that I've always been a "buy income streams" type investor rather than a "speculate on rising prices" investor but now I have an asset that gets most of it's returns through appreciation and it irks me. So my question is how do you guys who don't follow the 1 or 2% rules do it in HCOL areas? I could never bring myself to buy a house in SF on the assumption that it would keep going up for instance so why do investors keep buying there?
