Background: DINKs in our late 30s/early 40s. Both in high stress professions so def interested in other sources of income or decisions that allow us to work less than full time. We have found ourselves with a lot of real estate that our money is tied up in and would like to learn from other more experienced investors. We initially acquired the real estate for personal reasons- not as an investment.
Properties:
#1: We have a 3b/3ba home with 2.5% mortgage- 342k left in a desirable suburb HCOL. We lived here primarily for 10 years. Realtor thinks we can sell for $720-730k, $690k low end (no further improvements). I had a lot of interest to rent this home long term at $3500. Mortgage sits at $2200. We would hire property management company.
This neighborhood that isn’t a good fit for us anymore. We don’t plan to have kids and want to be closer to the city now that we have a place in the mountains. Basically want to split the time so my partner can continue to network/mountain living is very isolating.
#2: We recently got a very small 2nd home in a mountain town where I am currently working (572k at 6.25% ARM)- the commute is dangerous in the winter and the rentals are crazy expensive + we have been wanting a mountain place for many years. Highly desirable ski town with most homes over a million (median SFH 1.38m). We can Airbnb easily if needed but we now live here primarily.
#3: 0.3 acres of land in the highly desirable ski town. Resort is investing billions in expansion that started this year. Limited land to buy. We were going to build but ended up buying property #2 due to building costs and timeline. Paid in cash. No HOA. Taxes TBD this year but around $1218.
#4: 1 acre in US Virgin Islands. Paid in cash. HOA $400 a year. Taxes $283. Plan was to build for my parent’s retirement but they may try to buy instead.
Debts: We have student loans(our only other debt)- mine are 75k left at 3%. My partner is about 180k at 6.5%- so we are overpaying those and will look to refi when we can. We max out multiple retirement accounts- 401, HSA, back door Roth, pension contributions.
Capital gains clock is ticking on property #1 and we have about 2.5 years left to decide. We want to downsize but we are in HCOL so will likely just break even or pay $500-1000 more a month. We can’t afford to rent the home and be able to buy something in the city without savings for another 2-3 years. If we rent our home and rent something in the city- it would also be hard to save very quickly towards a down payment- rents are about 3k a month.
Should we just try to sell now and buy something? Is this a case of financially it doesn’t make sense but you gotta do what makes you happy- you can’t have both in this situation? TIA.
Should we sell our home? Capital gains clock is ticking.
byu/Radonkulously inrealestateinvesting
Posted by Radonkulously
7 Comments
Honestly with that 2.5% rate I’d lean toward keeping it as a rental – that spread between rent and mortgage payment is pretty solid cash flow, especially with property management handling the headaches
The capital gains exemption is nice but you’re basically trading a money printer for a one-time tax break, and good luck finding another property with financing that cheap
Being a landlord has many troublesome time consuming activities, including tenant turnover and screening, non paying tenants, tenant evictions, unplanned repairs to house, tenant caused damages, and loss of income from disputes and non payment, and managing repair contractors and so on..
Discuss the dark side with a real estate lawyer.
You’re not making a bad financial decision either way. You’re choosing between optimization and flexibility. Property #1 is a great asset on paper, but it locks up equity, slows your ability to buy in the city, and adds landlord complexity when your stated goal is to work less, not manage more. Selling is not failing at investing. It is buying liquidity and momentum while the capital gains clock still works in your favor. Keeping it likely means delaying the city move or accepting a longer, more stressful transition. This feels less like a math problem and more like deciding whether maximizing returns is worth postponing the lifestyle you actually want.
$3500/mo rent for a $720,000 house isn’t a great investment return. If you didn’t already own that house, would you buy it today as an investment? Essentially that’s what you’re deciding every day you don’t sell. Would it just be interest rate arbitrage?
If you’re not going to build on the two vacant land parcels, you are basically speculating that land prices will increase. That can be ok, if that’s what you want to do.
How much is the value of these vacant properties as a percentage of your overall investment asset allocation? If these lots are like 5-10% and your 401ks and IRAs are like 90-95% I’d say you can be patient and decide what you want to do as a lifestyle decision, not an investment. If these lots are worth some big chunk of your investment asset allocation, it doesn’t seem wise to have that much allocated to raw land that isn’t producing any return.
I wouldn’t just look at your choice to move houses as a comparison of monthly cash flow. It’s also asset allocation and where you have money invested.
Yes, you should sell. Property #1 no longer serves Primary residence utility, High-return investment role, or Strategic optionality (because of CG clock).
It is dead capital.
I am in a nearly identical situation. Similar valuations & interest rates. I have mine rented now for ~4700/month cash flowing ~1800/mo and I’m still going to sell mine before my 3 year cap gains tax relief is up.
Rent it plenty of time on cap gain clock. Make that monwy