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rated:
I am looking for some valuable advice from you FWers?  I have this home in FL which is now tenant occupied, I bought this house in beginning of 2013 and spent more than 2 years as primary residence and moved out to another home in May 2016 which is my current primary home since then. Now I like to know should I sell the rental house or keep it renting ? Just to  remember here if I choose to sale before the end of 5 years period I don't have to pay the tax on capital gain on the proceeds other wise after 5 years I have to pay tax on the gains. Total rent I'm getting currently is $2500.00(I pay $300 for hoa and lawn pool maintenance) and am expecting a major expense of new roof (around 12k-15k) if I continue renting after 5 years plus some other maintenance costs.

Here  are the facts: house bought at 226k and added around 30k for new screen on patio and paint the house, Houses are selling at 325k right now.
I bought the house at 226k (30 Years with 20% down @ Interest Rate 3.62500%)
Original Principal Balance $180,000.00

Monthly Payments:$1,434.17
Principal $322.25
Interest $498.64
Escrow Payment (Taxes and/or Insurance) $613.28

Can anyone advice if it is worth keeping the house and keep renting or selling it before 5 years and take the proceeds without paying capital gain tax. Appreciate reading about this and your valuable inputs. thanks.


 

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rated:
All the financials aside, I think it boils down to 2 issues:

- Do you want to continue to be a landlord?
- What would you do with the proceeds if you sold?

rated:
dcwilbur said:   All the financials aside, I think it boils down to 2 issues:

- Do you want to continue to be a landlord?
- What would you do with the proceeds if you sold?

Thank you for the quick reply, 
I really don't want to be landlord unless there is good margin on my investment.
With the proceeds, I may put 60%-70% in wealthfront or betterment or buy some house somewhere again thats all I can do.

rated:
Do the math for ROI on your investment vs average expected return on Weathfront or betterment.
You can always hire a property manager to be a landlord

rated:
$2500 gross rent on a $325k home is not a great investment in general. If you sold now for $325k with a payoff of $180k on the loan and 7% in realtors fees and closing costs you will net $122k, no tax on the gain. $122k in mutual funds at 6% growth per year works out to $611 a month. Right now you are getting $765 a month in cashflow before subtracting for maintenance, property manager, vacancy. Once you account for that you are close to zero for cashflow and depending on ~$300 in equity and uncertain appreciation for any returns. If you have reason to believe home prices will increase more than inflation and more than other areas, rent prices will increase more than other areas and more than inflation, you can continue to maintain the property without a property manager, and you will have below average vacancy it can be a good investment. That is a lot of ifs. I would sell and either invest in mutual funds or a more profitable investment property.

rated:
gnopgnip said:    $122k in mutual funds at 6% growth per year works out to $611 a month. 
  Where do you get 6% on anything that isn't risky or full of fees?

rated:
You've got $70-100k of taxable gain. Right now the sale would be tax free and saving you 15% of that. So this is a $10-15k question.
Selling a $325k house has probably 2x that much in overhead cost at least.

ARe there better rental investments in the area? WHy did you decide to rent it in the first place? Has that decision changed significantly in the near term.

If you're happy with the place and want to continue to hold it as a rental then theres no compelling reason to sell now versus last year.

If you don't particularly care to be a landlord or have a ~100k+ investment in a single rental property in a single market then it may be a good time to cash out.

rated:
FL sucks for real estate. Invest in coastal CA and your investment will double in two years.

rated:
mk26 said:   Just to  remember here if I choose to sale before the end of 5 years period I don't have to pay the tax on capital gain on the proceeds other wise after 5 years I have to pay tax on the gains.


 

[erroneous comment]

rated:
vranaco said:   
mk26 said:   Just to  remember here if I choose to sale before the end of 5 years period I don't have to pay the tax on capital gain on the proceeds other wise after 5 years I have to pay tax on the gains.


 

  It's hard to prove a specific figure, but technically your basis is the fair market value when it was converted to a rental. It's not tax-free after you convert it to a rental. You also have to recapture any depreciation you're taken. 

  

Where do you get that?  

 

rated:
This  is the first the first thing that came up through Google and I don't want to bother looking for a more authoritative link. I guess it is still tax free (except for any depreciation taken). It's just depreciation that is based on the lesser of your basis or FMV at the time of conversion.

rated:
gnopgnip said:   $2500 gross rent on a $325k home is not a great investment in general. If you sold now for $325k with a payoff of $180k on the loan and 7% in realtors fees and closing costs you will net $122k, no tax on the gain. $122k in mutual funds at 6% growth per year works out to $611 a month. Right now you are getting $765 a month in cashflow before subtracting for maintenance, property manager, vacancy. Once you account for that you are close to zero for cashflow and depending on ~$300 in equity and uncertain appreciation for any returns. If you have reason to believe home prices will increase more than inflation and more than other areas, rent prices will increase more than other areas and more than inflation, you can continue to maintain the property without a property manager, and you will have below average vacancy it can be a good investment. That is a lot of ifs. I would sell and either invest in mutual funds or a more profitable investment property.
  Thank you for your valuable input it helped me understand the numbers little bit, as some also mentioned 6% is not guaranteed investing on mutual funds but at least it will have more peace of mind than dealing with tenants.

rated:
jerosen said:   You've got $70-100k of taxable gain. Right now the sale would be tax free and saving you 15% of that. So this is a $10-15k question.
Selling a $325k house has probably 2x that much in overhead cost at least.

ARe there better rental investments in the area? WHy did you decide to rent it in the first place? Has that decision changed significantly in the near term.

If you're happy with the place and want to continue to hold it as a rental then theres no compelling reason to sell now versus last year.

If you don't particularly care to be a landlord or have a ~100k+ investment in a single rental property in a single market then it may be a good time to cash out.

  Thank you, I held the property last year because, I found a tenant immediately with decent rent which covers my monthly cost and also thought will sell it little more after a year.

rated:
Sounds like you hate tenants. I guess that's it then.

rated:
Can anyone advice if it is worth keeping the house and keep renting or selling it before 5 years and take the proceeds without paying capital gain tax.


It's not five years, it's 'used as your primary residence for 24 of the last 60 months before date of sale', or in effect, you need to close the sale within 3 years of moving out if you lived there for at least 2 years straight before you moved out.

rated:
Sell before the bubble pops again

rated:
gnopgnip said:   $2500 gross rent on a $325k home is not a great investment in general. 
I love how people can take decent appreciation on a property/investment and use that as a negative. So the greater a house appreciates in the time frame, the worse the investment. I guess the expectation is rents will follow appreciation 100%. 

rated:
That's true. But we're doing the analysis from this point forward, as if it were a new investment right now. Obviously if he thinks he'll see appreciation in excess of inflation, he should just keep the property.

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