[USER]

Looking for advice on selling/keeping rental property:
Value: ~$410k
Remaining Mortgage: $245k at 2.99%
PITI: $1376

Current Rent: $2200 with 6 months left
Location: Nashville, TN

Leaning toward selling as this was a primary residence 1 year ago and so would not be subject to capital gains tax based on the 2 of 5 year rule.

Proceeds of ~$125k would likely be placed directly into an after tax brokerage and invested in an s&p 500 index fund.

(Open to other ideas)
Overall has been relatively smooth with no real headaches, but I think the returns could be higher elsewhere with the amount of equity tied up in the property.

Overall, just not sure if we should pull the trigger and sell to reallocate or maintain diversity within real estate in hopes of outsized gains due to the location.

Other relevant numbers:
Age: 30 and 31
Pre-tax household income: $185k

Current retirement across all accounts: $275k
Cash in CD ladder and HYSA for future (next 2-3 yr) move to larger home: $150k

Primary home value: $525k with remaining mortgage of $370k at 6.99%

[Justin]

I look at real estate (like your primary residence turned rental) as a long-term investment (at least 7-10+ years — but the returns get better even longer).

What I believe is usually overlooked in the real estate calculation is inflation.

The mortgage goes up at a much slower rate than rent and you keep any increase in valuation of the house (not just the portion you own).

The capital gains tax exception is a key decision point. For one house I have decided to keep it as a rental “forever” (to pass on to my heirs with a step-up in basis, so no capital gains taxes for them).

The other I am renting for 3 years and I’ll make the decision to sell when I get close to the cap gains exception decision point.

All the best in your decision.

[David]

Sell IMO as this is not a great investment long term / house being $410K and rents $2.2K. It doesn’t even come close to the 1% rule.

Once you factor in vacancy, upkeep and repairs this one would be a loser I suspect.

[Rick]

Sell
Not a great return especially if you count not only piti but the common long term landlord expenses of maintenance, long term repair sinking fund, etc etc.

I expect it becomes a poor return when all of that is considered.

Turning this into a speculation play with a lot of risk. But Nashville has been a hot market but…try to say that about a single stock and see the reaction you get here….

The tax free option window is a big huge deal effectively turning into a multi $10k immediate hit to your net worth on the day it expires (if you are an accounting nerd and track accrued liability).

Outside of your question, why the upgrade house (size, size, and debt) plan?

I bet you can make it work, many do, hell I did when younger.

[Author]

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