I need thoughts on whether I should liquidate my single-family rental and invest that money in the stock market, or just keep it going.
Context:
If I sold the house, I would net around $80,000 after capital gains taxes, selling fees, etc.
That is less than the down payment and renovations I put into the home. I realize in hindsight that it was not a good investment, other than the amount of things we learned along the way.
Based on my math, after 15 years, I could expect the $80,000 to turn to $250,000 if I put that money into a typical index fund.
On the other hand, based on a 3% annual growth in the value of the home (good suburb in MN), I could be looking at close to $400,000 from selling the home after that same time period.
The home is currently operating as an Airbnb (that I don’t manage), which I expect to break even each year (not ideal, I know). If I held for 15 years, I would surely have to replace the windows, roof, and mechanicals in the home, which would probably cost me ~$60k. These expenses are likely coming in the next couple years. But even after those expenses, the math says I’m better off keeping it. That being said, it is on my mind often and I have to go over and fix things more than I’d like.
What am I missing here?
Liquidate rental or count on appreciation?
byu/stealthycowbell inpersonalfinance
Posted by stealthycowbell
4 Comments
Breaking even means that the very best you can do is to beat the market on appreciation, minus expenses, or that you keep it until you pay it off and it generates positive cash flow. If you can stand the swings, holding on to it isn’t a bad idea if you intend to live in it again one day, intend to rent it forever, or intend to sell it. None of those outcomes are predictable. We could also be in for new laws on owning multiple homes to try to reset the real estate market for owners over renters. You may love your house but if it is a million dollar mid century modern in a town of 500 people you probably can’t ever sell it and if its a 3/2 with a garage and a yard on the peninsula in SFO you probably can’t lose no matter what.
Taxes on capital gains. Risk of a bad renter.
Breaking even means you’re losing money after taxes, maintenance, etc. And expecting to break even almost never works that way – vacation rentals are saturated and I don’t think I’ve seen a person with them accurately forecast their vacancy rate, and they always guess too low.
> That is less than the down payment and renovations I put into the home
I’m a little confused by your math. Why would you owe capital gains tax if you don’t have any gains on this sale?
Unless you enjoy operating it as a rental and it fits into your long-term plan, I would probably sell it at diversify into stocks that are truly passive and easier to disperse risk over multiple markets.