Should I sell or rent out my bay area house?

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cyberme
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Should I sell or rent out my bay area house?

Post by cyberme » Sun Oct 21, 2018 7:52 pm

I have to relocate from SF bay area to another city. I have a house here with mortgage. I don't know if I should sell or rent out. I don't want to manage rental long distance. If I choose to rent I will have to hire a property management company. I will not have positive cash flow. Selling is more straight forward but I'm just worried if I will ever come back here I can never afford to buy another house anymore. The housing price in bay area has gone crazy in recent years. Any suggestions will be greatly appreciated!

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rocket354
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Re: Should I sell or rent out my bay area house?

Post by rocket354 » Sun Oct 21, 2018 7:57 pm

cyberme wrote:
Sun Oct 21, 2018 7:52 pm
I don't want to manage rental long distance.
...
I will not have positive cash flow.
...
Selling is more straight forward
I think you've answered your own question. Prices have gone crazy, but that does not mean they will continue to. Enjoy the gains you've probably gotten, and worry about what may or may not happen when the time comes--you may currently think you will move back but life has a way of not going as we planned. Best of luck with your decision.
Last edited by rocket354 on Sun Oct 21, 2018 7:58 pm, edited 1 time in total.

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indexfundfan
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Re: Should I sell or rent out my bay area house?

Post by indexfundfan » Sun Oct 21, 2018 7:58 pm

If you have plans to return, then I suggest not to sell it until your plans are clearer.

I moved out of the bay area last year. I sold my house because I have no intention of returning.
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sergeant
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Re: Should I sell or rent out my bay area house?

Post by sergeant » Sun Oct 21, 2018 8:00 pm

I would absolutely sell it if under the same circumstances you listed. It's a no-brainer for me because I never want to be a landlord and definitely wouldn't be one with a negative cash flow.
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srt7
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Re: Should I sell or rent out my bay area house?

Post by srt7 » Sun Oct 21, 2018 8:03 pm

cyberme wrote:
Sun Oct 21, 2018 7:52 pm
I have to relocate from SF bay area to another city. I have a house here with mortgage. I don't know if I should sell or rent out. I don't want to manage rental long distance. If I choose to rent I will have to hire a property management company. I will not have positive cash flow. Selling is more straight forward but I'm just worried if I will ever come back here I can never afford to buy another house anymore. The housing price in bay area has gone crazy in recent years. Any suggestions will be greatly appreciated!
Definitely need more info. Why are you relocating? (Job? Personal reasons?) What makes you think the move is permanent? Where are you relocating? etc.

Based on your post ... I would say rent it out. You have a good 3 years to decide if you'd like to sell or not without paying taxes on the sale. (to avoid paying tax on a sale you should have used the property as primary residence for 2 of the past 5 years).
I can't think of anything more luxurious than owning my time. - remomnyc

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Cycle
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Re: Should I sell or rent out my bay area house?

Post by Cycle » Sun Oct 21, 2018 8:05 pm

If it doesn't cash flow with property management, sell it. No brainier. I'm a small time landlord.

Prices in bay area are inflated due to zoning issues creating lack of supply. If this issue is ever resolved, there will be a relief in home prices.

In Minneapolis, all the single family home neighborhoods are getting rezoned to triplex. Many of the neighborhoods near downtown are getting rezoned to allow even greater density. I don't see any reason this wouldn't proliferate to other cities.

I'd get out before the tide turns.

MrDrinkingWater
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Re: Should I sell or rent out my bay area house?

Post by MrDrinkingWater » Sun Oct 21, 2018 8:22 pm

Maybe you could do a little math and figure out what is best for you. For example, if your home is worth $2 million, can you rent it out for $6500 a month? Would you be better off renting it out than choosing to put your net profits from selling into a broadly diversified portfolio of low-cost index funds?

Is your new city a low cost of living area? That might be an influence on what is the best middle-of-the-road approach for you to take. Do you think you will be in your new city for five or fewer years before moving on to your next promotion or your next new job? In this modern economy, there is a valid argument for being a serial renter instead of being a serial sell-then-buy homeowner, if you don't have an executive level relocation package.

Good luck! Sounds like you are doing well, and you have options.

HEDGEFUNDIE
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Re: Should I sell or rent out my bay area house?

Post by HEDGEFUNDIE » Sun Oct 21, 2018 9:18 pm

Cycle wrote:
Sun Oct 21, 2018 8:05 pm
If it doesn't cash flow with property management, sell it. No brainier. I'm a small time landlord.

Prices in bay area are inflated due to zoning issues creating lack of supply. If this issue is ever resolved, there will be a relief in home prices.

In Minneapolis, all the single family home neighborhoods are getting rezoned to triplex. Many of the neighborhoods near downtown are getting rezoned to allow even greater density. I don't see any reason this wouldn't proliferate to other cities.

I'd get out before the tide turns.
MSP is surrounded by open flat land. The Bay Area is not. Also, Bay Area homeowners have a strong incentive to constrain the supply of housing, and so they regularly vote down any new developments.

random_walker_77
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Re: Should I sell or rent out my bay area house?

Post by random_walker_77 » Sun Oct 21, 2018 9:46 pm

Do you think you'd relocate back to the bay area? If so, would you relocate back to this specific city/house?
How much equity do you have in this house?
How much (percentage-wise) would it have to drop before you're underwater?
What percentage of the value of this property is land vs structure?

How bad is the cashflow relative to your income (typical)? How bad could this be for your cashflow, worst case (house sits empty and you're unemployed)?

How much of an emergency fund do you have and how does that stack up against worst case cashflow?

How old are you, and would the house be appropriate to your family situation in 3 yrs? (5 yrs? 10 yrs?)

Do you see this house as a place to live or an investment? How do you feel about the risk vs reward potential for this single undiversified asset?

pros to selling:

possibly get out with substantial profits to invest (how much?)
avoid a cash-flow drain
capital can be redeployed to other investments
you might never want to move back to this city/house
minimize the risk of losses/unpleasantness due to a drop in housing prices
avoid the hassles of landlording

cons:
house prices might appreciate faster than stocks, could make it expensive or impossible to buy back in, depending on your income

headaches of landlording: risk of property damage by renters. On the other hand, the risk of damage by renters is presumably smaller than usual, simply because most of the value is in the land, not the structure

might miss out on even more appreciation, which is amplified by the leverage you have from your mortgage. (leverage in a nutshell: if you buy with 10% down, and the house prices immediately go up by 20%, then you've tripled your money)

randomguy
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Re: Should I sell or rent out my bay area house?

Post by randomguy » Sun Oct 21, 2018 9:47 pm

HEDGEFUNDIE wrote:
Sun Oct 21, 2018 9:18 pm
Cycle wrote:
Sun Oct 21, 2018 8:05 pm
If it doesn't cash flow with property management, sell it. No brainier. I'm a small time landlord.

Prices in bay area are inflated due to zoning issues creating lack of supply. If this issue is ever resolved, there will be a relief in home prices.

In Minneapolis, all the single family home neighborhoods are getting rezoned to triplex. Many of the neighborhoods near downtown are getting rezoned to allow even greater density. I don't see any reason this wouldn't proliferate to other cities.

I'd get out before the tide turns.
MSP is surrounded by open flat land. The Bay Area is not. Also, Bay Area homeowners have a strong incentive to constrain the supply of housing, and so they regularly vote down any new developments.
I am sure the Minneapolis people did the feel the same way. Reality is that nobody can tell you if the house is going to be worth 2x as much in 5 years or half as much. You can make up all sorts of stories. They haven't solved the supply issue with over 30 years of political action. Maybe they will next year:)

Move away and sell and you might find the area unaffordable when you come back. You might pay 50% more for the house and 300% more in property taxes (you go from paying 5k on your current place to 15k on the replacement). You could move away and not sell and watch it drop 300k in value. Or any combo in between. Make some guesses on the likely hold of outcomes and live with your choice. I think there might be a lot said for renting it out for a year so you can learn if you really miss it or if your just as happy somewhere else.

RoseN
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Re: Should I sell or rent out my bay area house?

Post by RoseN » Mon Oct 22, 2018 1:15 am

One other thing to consider is that the Bay Area has strong eviction control laws. If your house is in San Francisco, Oakland, Berkeley, or a number of other cities, you can't just ask the tenants to leave if you want to sell the house. (I learned this the hard way.) And selling a house with tenants decreases the sales price significantly. Also, if you rent it out for too long (eg more than 3 years) and then have the opportunity to sell, you'll lose the 250K (for a single person) / 500K (for a married couple capital gains exclusion. If your house has increased a lot in value, this is a significant savings to forgo. Finally, you should know that if you want to move back in, in some cities, you have to pay the tenants several thousand dollars to compensate for the loss/inconvenience. When you do this "owner move-in eviction", you have to live in the house for at least 3 years, otherwise, the tenants or city may sue. Being a landlord in the Bay Area is not for the faint of heart.

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mrspock
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Re: Should I sell or rent out my bay area house?

Post by mrspock » Mon Oct 22, 2018 2:10 am

cyberme wrote:
Sun Oct 21, 2018 7:52 pm
I have to relocate from SF bay area to another city. I have a house here with mortgage. I don't know if I should sell or rent out. I don't want to manage rental long distance. If I choose to rent I will have to hire a property management company. I will not have positive cash flow. Selling is more straight forward but I'm just worried if I will ever come back here I can never afford to buy another house anymore. The housing price in bay area has gone crazy in recent years. Any suggestions will be greatly appreciated!
Be sure to fully appreciate the nuance prop 13 (https://en.m.wikipedia.org/wiki/Califor ... _13_(1978)) introduces on these decisions, if you have a hefty capital gain or expect prices to go up significantly, having your taxes locked in at a lower rate is a considerable benefit you need to quantify (maybe model saving vs fair market as a bond?). Once you do that, run the numbers and see where it takes you.

I do not envy this decision, but given you opted for relocation in the first place, that’s probably a sign/signal of something? Or was this involuntary?

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jabberwockOG
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Re: Should I sell or rent out my bay area house?

Post by jabberwockOG » Mon Oct 22, 2018 7:48 am

Sell high is rarely a mistake. Being a long distance landlord is not a fun job even with a management company taking big fess and doing little in return.

Tal-
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Re: Should I sell or rent out my bay area house?

Post by Tal- » Mon Oct 22, 2018 7:58 am

Sell.

I could be talked into you holding as a rental in special circumstances, but those circumstances would need to be very special...
Debt is to personal finance as a knife is to cooking.

pennylane
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Re: Should I sell or rent out my bay area house?

Post by pennylane » Mon Oct 22, 2018 8:09 am

Negative cash flow?

Yes, sell.

Dottie57
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Re: Should I sell or rent out my bay area house?

Post by Dottie57 » Mon Oct 22, 2018 8:09 am

rocket354 wrote:
Sun Oct 21, 2018 7:57 pm
cyberme wrote:
Sun Oct 21, 2018 7:52 pm
I don't want to manage rental long distance.
...
I will not have positive cash flow.
...
Selling is more straight forward
I think you've answered your own question. Prices have gone crazy, but that does not mean they will continue to. Enjoy the gains you've probably gotten, and worry about what may or may not happen when the time comes--you may currently think you will move back but life has a way of not going as we planned. Best of luck with your decision.
+1

Take your profits and use wisely.

mmmodem
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Re: Should I sell or rent out my bay area house?

Post by mmmodem » Mon Oct 22, 2018 8:34 am

My sister and I both moved out of the Bay Area this year. We're both cash positive if we choose to rent the home. I chose to sell and she chose to rent. This will be her second home in the Bay Area to rent. She's living in a third home far away. I prefer not owning real estate other than my primary residence. In your situation, I would sell. My sister would say refinance so that you are in a cash positive situation and then rent. To each their own.

visualguy
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Re: Should I sell or rent out my bay area house?

Post by visualguy » Mon Oct 22, 2018 9:16 am

If you can afford to keep it, and it's in a good location in the Bay Area (schools, commute, etc.), then I would keep it.

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Cycle
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Re: Should I sell or rent out my bay area house?

Post by Cycle » Mon Oct 22, 2018 4:23 pm

HEDGEFUNDIE wrote:
Sun Oct 21, 2018 9:18 pm
Cycle wrote:
Sun Oct 21, 2018 8:05 pm
If it doesn't cash flow with property management, sell it. No brainier. I'm a small time landlord.

Prices in bay area are inflated due to zoning issues creating lack of supply. If this issue is ever resolved, there will be a relief in home prices.

In Minneapolis, all the single family home neighborhoods are getting rezoned to triplex. Many of the neighborhoods near downtown are getting rezoned to allow even greater density. I don't see any reason this wouldn't proliferate to other cities.

I'd get out before the tide turns.
MSP is surrounded by open flat land. The Bay Area is not. Also, Bay Area homeowners have a strong incentive to constrain the supply of housing, and so they regularly vote down any new developments.
Huh? Your point on lack of available land is why communities will vote for greater density in the future. Renters can vote.

shiftleft
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Re: Should I sell or rent out my bay area house?

Post by shiftleft » Mon Oct 22, 2018 4:38 pm

srt7 wrote:
Sun Oct 21, 2018 8:03 pm
Based on your post ... I would say rent it out. You have a good 3 years to decide if you'd like to sell or not without paying taxes on the sale. (to avoid paying tax on a sale you should have used the property as primary residence for 2 of the past 5 years).
I believe you have up to a 250K (500K if married) exclusion if you sell immediately. But as you rent, that maximum amount goes down pretty quickly. This happened to me (assuming I did the taxes right). And any rental income was pretty much a wash with the tax lost. Check with your accountant.

HEDGEFUNDIE
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Re: Should I sell or rent out my bay area house?

Post by HEDGEFUNDIE » Mon Oct 22, 2018 5:55 pm

Cycle wrote:
Mon Oct 22, 2018 4:23 pm
HEDGEFUNDIE wrote:
Sun Oct 21, 2018 9:18 pm
Cycle wrote:
Sun Oct 21, 2018 8:05 pm
If it doesn't cash flow with property management, sell it. No brainier. I'm a small time landlord.

Prices in bay area are inflated due to zoning issues creating lack of supply. If this issue is ever resolved, there will be a relief in home prices.

In Minneapolis, all the single family home neighborhoods are getting rezoned to triplex. Many of the neighborhoods near downtown are getting rezoned to allow even greater density. I don't see any reason this wouldn't proliferate to other cities.

I'd get out before the tide turns.
MSP is surrounded by open flat land. The Bay Area is not. Also, Bay Area homeowners have a strong incentive to constrain the supply of housing, and so they regularly vote down any new developments.
Huh? Your point on lack of available land is why communities will vote for greater density in the future. Renters can vote.
They can vote but they also tend to be transient and politically inactive.

randomguy
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Re: Should I sell or rent out my bay area house?

Post by randomguy » Mon Oct 22, 2018 6:02 pm

jabberwockOG wrote:
Mon Oct 22, 2018 7:48 am
Sell high is rarely a mistake. Being a long distance landlord is not a fun job even with a management company taking big fess and doing little in return.
Sure. But how do you know if you are sellong high or low? If it is selling low, the option of moving back can be closed off. How much to value that option is the question

petulant
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Re: Should I sell or rent out my bay area house?

Post by petulant » Mon Oct 22, 2018 6:23 pm

The only reason mentioned by OP for keeping the house is the worry about coming back to an even higher housing market in the future. So, OP, what do you think is the probability of going back to SF in the future?

visualguy
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Re: Should I sell or rent out my bay area house?

Post by visualguy » Mon Oct 22, 2018 6:31 pm

petulant wrote:
Mon Oct 22, 2018 6:23 pm
The only reason mentioned by OP for keeping the house is the worry about coming back to an even higher housing market in the future. So, OP, what do you think is the probability of going back to SF in the future?
Investment for appreciation would be another reason. The huge supply/demand imbalance in that area, and the high levels of wealth are likely to persist.

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jabberwockOG
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Re: Should I sell or rent out my bay area house?

Post by jabberwockOG » Mon Oct 22, 2018 9:32 pm

randomguy wrote:
Mon Oct 22, 2018 6:02 pm
jabberwockOG wrote:
Mon Oct 22, 2018 7:48 am
Sell high is rarely a mistake. Being a long distance landlord is not a fun job even with a management company taking big fess and doing little in return.
Sure. But how do you know if you are sellong high or low? If it is selling low, the option of moving back can be closed off. How much to value that option is the question
Selling high (and making and locking in a nice profit) is rarely a mistake but waiting to try to sell "highest" is a very common one.

somekevinguy
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Re: Should I sell or rent out my bay area house?

Post by somekevinguy » Mon Oct 22, 2018 9:53 pm

As a renter looking to buy in the Bay Area, I'd probably vote to keep it. It depends of course:

1) Any chance of coming back and if so, how high of a chance? Or perhaps it is unclear as of now in which case I'd keep it as well.
2) Prop 13 and property taxes being locked in are no joke. My current landlord probably pays 4-5K/yr in property tax where if I were to buy the house at market value, I'd be paying 25K+/yr in perpetuity

If you're sure you're leaving for good/have no interest in coming back, it isn't a bad time to sell and the 250/500K exemption is a nice little bonus as well.

TravelGeek
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Re: Should I sell or rent out my bay area house?

Post by TravelGeek » Tue Oct 23, 2018 1:33 am

We left three years ago. Decided to sell because we didn’t want to be remote landlords and were not expecting to return. And we also thought then that the prices were insane; the bidding process was a very bizarre experience for us (first time home sellers). “Really? They want to give us THAT MUCH money? In cash?”

Prices have, of course, continued to climb. I haven’t bothered to calculate whether our decision was the right one with the benefit of hindsight figuring that we of course invested our proceeds into our new home in a MCOL area and into stocks/bonds. But we don’t regret our choice.

OP’s key factor unknown to us is really how likely it is that they might want or need to return.

petulant
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Re: Should I sell or rent out my bay area house?

Post by petulant » Tue Oct 23, 2018 5:37 pm

visualguy wrote:
Mon Oct 22, 2018 6:31 pm
petulant wrote:
Mon Oct 22, 2018 6:23 pm
The only reason mentioned by OP for keeping the house is the worry about coming back to an even higher housing market in the future. So, OP, what do you think is the probability of going back to SF in the future?
Investment for appreciation would be another reason. The huge supply/demand imbalance in that area, and the high levels of wealth are likely to persist.
The key was, “mentioned by the OP.” If it was appreciation, we would be looking at the odds of it continuing, estimating returns compared to stocks, thinking through risk, etc. But OP said their fear is coming back to a higher market. That is the fear to address.

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