Should I sell my house or rent it out?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I no longer live in VA but still own my SFH (in Reston) worth about 650K. The house is fully paid off, but it needs some work.
It’s been sitting for almost six months now since I moved away. I thought I was going to sell, but I just can’t bring myself to list it. Now I’m considering renting it out.
We’re not extremely wealthy and this house is about half of our total net worth.
Should we sell this house or rent it out? Were currently on the west coast and if we moved back to Reston it wouldn’t be for 15-20 years. This decision has me paralyzed! Please advise.

I was a landlord for many years. It was OK when I lived near my rental property. But after moving a mere 20 miles away, it turned into a huge hassle.

Sell NOW while you can take advantage of the right to protect your capital gains on the property from taxation. If you wait too long, you may face a hefty tax. This is what happened to me, and it was a foolish mistake.

What if she moves back and occupies the house again a few years later? These scenarios are not uncommon. If she rents for 5 years then moves back and lives in the house for another 2 years, can't se sell it then and not pay capital gains tax?

[Anonymous]

No you should not rent it bc you are emotionally attached to it and will view every single action by a renter as a personal attack on you and you will not be able to comprehend the concept of “normal wear and tear” .

You will be the kind of landlord who would go on Judge Judy and claim the renters “destroyed “ the place and then lose and then be outraged.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I no longer live in VA but still own my SFH (in Reston) worth about 650K. The house is fully paid off, but it needs some work.
It’s been sitting for almost six months now since I moved away. I thought I was going to sell, but I just can’t bring myself to list it. Now I’m considering renting it out.
We’re not extremely wealthy and this house is about half of our total net worth.
Should we sell this house or rent it out? Were currently on the west coast and if we moved back to Reston it wouldn’t be for 15-20 years. This decision has me paralyzed! Please advise.

I was a landlord for many years. It was OK when I lived near my rental property. But after moving a mere 20 miles away, it turned into a huge hassle.

Sell NOW while you can take advantage of the right to protect your capital gains on the property from taxation. If you wait too long, you may face a hefty tax. This is what happened to me, and it was a foolish mistake.

You never heard of rental maintenance companies? Yeah, OP will definitely need one, she won't even be driving distance away, so your scenario isn't even applicable in her situation. She needs to price out how much rent she can get and how much maintenance company will take out to see how much profit she will net, and then decide if she can do better investing all the proceeds. She also needs to price the repairs if she is saying the house needs work. She should feel comfortable with however she invests so much of her NW. Strangers advice is moot. I am just pointing out that there is an easier option to rent out a place if you are willing to part with some of your proceeds. Advice "you are moving too far away therefore you cannot rent it out" is rather strange.

[Anonymous]

Kind of funny how some people think that your problems all of a sudden go away when you hire a property management company. I'm assuming that they don't own rental properties or maybe they rent out a condo. Yes, your problems tend to be minimized, but one of your new problems will be all of the money you are pissing away. They will likely charge a couple grand to find you a renter. Then you are paying 10% every month. And every time something breaks, the property manager just calls a handyman who likely does crappy work and you get to pay for it. And when you turn over the house, expect to pay someone to repaint the house, replace flooring, fix stuff, etc. Trust me, it can easily be 3+ weeks of work if someone is doing the work themselves. The manager also won't know anything about specific issues for your house because he/she is managing dozens of houses. In the DC market, you could easily be in the hole $500 every month, possibly more.

[Anonymous]

Sell. I would not want the legal risk of being a landlord.

[Anonymous]

Sell it.

[Anonymous]

Anonymous wrote:No you should not rent it bc you are emotionally attached to it and will view every single action by a renter as a personal attack on you and you will not be able to comprehend the concept of “normal wear and tear” .

You will be the kind of landlord who would go on Judge Judy and claim the renters “destroyed “ the place and then lose and then be outraged.

This is so true. A family friend SUED a renter for something like $7K plus attorney fees for things like the handle of the garage door was broken, the thingy that helps the oven door open was broken, there was a RAISIN on the floor (in the actual lawsuit), the dryer had some sand in it, etc. They claimed even though they rented the house 12 months out of the year that it was a family home. You can’t have it both ways.

[Anonymous]

Anonymous wrote:Sell it before you lose your capital gains exclusion.

Yes this is very important. If you sell it now, assuming you are married and own it jointly, up to 500K of the capital gains from the sale will be tax free. If you rent it out, you will lose that tax break.

[Anonymous]

Anonymous wrote:

Anonymous wrote:First of all, it’s not wise to have half of your net worth tied up in such an illiquid investment. In the best of times, it takes months to liquidate a house, and if the market slows down, it could take years.

Also, make sure you look at all the tax implications of renting, including how depreciation recapture works. Also the impact of losing the capital gains tax exemption, if the house has appreciated since you purchased it.

FWIW, I inherited several rental properties in a hot real estate market and, after doing the math on all the expenses (maintenance, taxes, insurance, management fees, business license, etc), and then add in the loss of tax basis through depreciation, it didn’t pencil out as investment vs. the stock market. You can buy a CD now that has over 5% interest, and you don’t have to hassle with renters.

It looked to me like rental real estate is a good investment IF you are highly leveraged AND in a market that is appreciating, and could cover all of your expenses, including mortgage, with the rent. That worked much better when you could get a sub 3% interest rate.

A CD has a limit on how much you can invest. If her house is paid off she will be way over FDIC ins limits and will have to maintain multiple accounts in multiple institutions and roll them over when they mature, and they may not mature into high rate environment years later. Rates for high yield saving accts also fluctuate. If she buys long term CD her money isn't liquid either, in fact if she needs it, she will have to wait many months to get access just the same as if she puts RE for sale. Yes, it's a good idea if you don't have hundreds of thousands to invest and you really do not need this money. It's one of the diversification vehicles if you invest elsewhere too. But it's not necessarily *better* in an of itself

Some misconceptions here. As an executor, I had millions in estate cash (from the sale of rental property, FWIW) that had to be invested in FDIC insured vehicles, and CDs were the easiest way to do this. My bank handled buying and holding multiple CDs from different banks, each under the FDIC limit. I just had to be careful not to buy from the banks where the estate already had accounts. Also, CDs can also be sold before they mature.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:First of all, it’s not wise to have half of your net worth tied up in such an illiquid investment. In the best of times, it takes months to liquidate a house, and if the market slows down, it could take years.

Also, make sure you look at all the tax implications of renting, including how depreciation recapture works. Also the impact of losing the capital gains tax exemption, if the house has appreciated since you purchased it.

FWIW, I inherited several rental properties in a hot real estate market and, after doing the math on all the expenses (maintenance, taxes, insurance, management fees, business license, etc), and then add in the loss of tax basis through depreciation, it didn’t pencil out as investment vs. the stock market. You can buy a CD now that has over 5% interest, and you don’t have to hassle with renters.

It looked to me like rental real estate is a good investment IF you are highly leveraged AND in a market that is appreciating, and could cover all of your expenses, including mortgage, with the rent. That worked much better when you could get a sub 3% interest rate.

A CD has a limit on how much you can invest. If her house is paid off she will be way over FDIC ins limits and will have to maintain multiple accounts in multiple institutions and roll them over when they mature, and they may not mature into high rate environment years later. Rates for high yield saving accts also fluctuate. If she buys long term CD her money isn't liquid either, in fact if she needs it, she will have to wait many months to get access just the same as if she puts RE for sale. Yes, it's a good idea if you don't have hundreds of thousands to invest and you really do not need this money. It's one of the diversification vehicles if you invest elsewhere too. But it's not necessarily *better* in an of itself

Some misconceptions here. As an executor, I had millions in estate cash (from the sale of rental property, FWIW) that had to be invested in FDIC insured vehicles, and CDs were the easiest way to do this. My bank handled buying and holding multiple CDs from different banks, each under the FDIC limit. I just had to be careful not to buy from the banks where the estate already had accounts. Also, CDs can also be sold before they mature.

THIS^^^^
It is not that difficult to manage CDs and having full FDIC insurance, especially given most of the best rates come from Online banks. And yes, CDs can easily be sold before they mature with anywhere from a 1 month to 3 month penalty in interest lost

[Anonymous]

OP here. Thank you for all the thoughtful responses. Yes, I am emotionally attached to the home. Thank you to the posters who are pointing that out. At least now I can recognize that as a factor in my decision making.

It’s highly unlikely we would move back to Reston in the next 5-10 years. However we could very possibly move back in 20 years.

This is such a difficult decision and I’m letting my emotions get in the way of thinking clearly here.

[Anonymous]

Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.

[Anonymous]

Anonymous wrote:Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.

+1

If you do move back to Reston in 20+ years, you likely won't want a house---you'd want a condo or to be in a different location perhaps. So sell, take cap gains benefits, invest and if you need to move back to DC area, then you can pick what you want then without having had the stress and/or costs of being a landlord. Most of the time homes will not keep up with the market returns when you factor in all the costs you must outlay yearly for a home (taxes, maintenance, insurance, etc)

[Anonymous]

Anonymous wrote:Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.

Isn't her house paid off and she will make rental income? Your scenario assumes the house only carries costs and appreciate with inflation if at all. She can take rental income and invest it in the markets. She needs to calculate how much rental income she will net and compare with the performance of her market investments. She isn't likely to do better in the markets than she is already doing, because this assumes re-education and for her to change her strategies.

Another question to ask is whether she wants to pass the house on to her kids. She needs to do the numbers, that's the bottom line. Also, it is beneficial for her to sell and not pay cap gains tax on her appreciation now before it gets rolled over into a rental property. But then she gets to deduct expenses of rental maint. from her income as well as depreciation. Depending on her income bracket she may get tax breaks and invest the money she would have had to pay in taxes each year.

What you say (cash out, pay no tax and invest the whole 600+K in the markets that will continue growing steadily with a rather high rate of 6% and with no risk) sounds tempting and convincing, but I don't think counting on markets consistently returning this for the next 2 decades is realistic. You are looking at the past performance, but then the same rule has to apply to housing market where properties keep appreciating. Yet we don't believe this will continue and believe housing prices may actually drop or barely keep up with inflation. What makes you believe markets will keep rising in that scenario?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Take it and invest it. After investing for 20 years at 6% interest, your initial investment of $650,000 will have grown to $2,084,638 with literally ZERO outlay on your part. Meanwhile, that house in Reston will have property taxes, repairs, etc. and even if it's paid off will absolutely COST you money year over year.

Isn't her house paid off and she will make rental income? Your scenario assumes the house only carries costs and appreciate with inflation if at all. She can take rental income and invest it in the markets. She needs to calculate how much rental income she will net and compare with the performance of her market investments. She isn't likely to do better in the markets than she is already doing, because this assumes re-education and for her to change her strategies.

Another question to ask is whether she wants to pass the house on to her kids. She needs to do the numbers, that's the bottom line. Also, it is beneficial for her to sell and not pay cap gains tax on her appreciation now before it gets rolled over into a rental property. But then she gets to deduct expenses of rental maint. from her income as well as depreciation. Depending on her income bracket she may get tax breaks and invest the money she would have had to pay in taxes each year.

What you say (cash out, pay no tax and invest the whole 600+K in the markets that will continue growing steadily with a rather high rate of 6% and with no risk) sounds tempting and convincing, but I don't think counting on markets consistently returning this for the next 2 decades is realistic. You are looking at the past performance, but then the same rule has to apply to housing market where properties keep appreciating. Yet we don't believe this will continue and believe housing prices may actually drop or barely keep up with inflation. What makes you believe markets will keep rising in that scenario?

The stock market consistently returns 7%+ over time. So as long as you take it out of market a few years before you actually fully need it you should be good....market is the simplest way to get a good return. Much less risky than a rental house, especially one that's older and will need work. What if you go 3 months between renters, then your profits for the year might be gone.