High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

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millennialboglehead
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Joined: Sun Nov 24, 2019 12:23 pm

High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by millennialboglehead » Sun Nov 24, 2019 2:10 pm

Hello - I am a millennial newer to real estate looking for advice on whether to rent or sell my current property. My current house was bought for $480k 2.5 years ago in a LCOL area in one of the "Best Places to Live" (according to publications). Projected property value growth is around 8% next year for my neighborhood.

My husband and I are being relocated to another LCOL city for our jobs. Our corporate relocation pays realtor fees, closing costs, etc. on both ends (selling in current location and buying in new location). If we sell, realtors have suggested we list our house for $540K (vs. $480k paid). If we were to rent, we would hire a property manager and estimate cash flow would be low: $100-$200 a mo.

To make matters convoluted, there is a 50% chance in 2-3 years we will be relocated BACK to our current location. Our house is in a desirable historic neighborhood with low inventory and we would likely be looking for the same or similar property 3 years from now if we had to move back. What would you do if you were in this situation? Would you sell and cash out or rent/hold? Anything I should take into consideration not mentioned here?

More context: in new city we predict the second mortgage for the area we would want to purchase would be similar cost, around $2000-$2500 (higher taxes in new location).

Facts:
Age: 30 yo married couple, dual income
Income: $300k base pay, with ~25K in stock options 1x/yr. Our pay has increased rapidly last 3 years, but will be around the same from here on out.
Mortgage: $2200 / mo
Average Monthly Expenses: $3200 (car payment, gas, food, gym, travel, etc.)

$350K in low cost index funds
$315K in 401ks (maxing out each year)
$135K in high yield savings in prep for second potential down payment
$115K in current house equity
$70K in misc company stock options

Goal33
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by Goal33 » Sun Nov 24, 2019 2:28 pm

Similar profile millennial except in a HCOL area. I’d sell. You make enough money that you can manage any real estate valuation changes. Not worth being a landlord in your case. This is just what I’d do.
A man with one watch always knows what time it is; a man with two watches is never sure.

annu
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by annu » Sun Nov 24, 2019 2:45 pm

If possible to rent, rent it out, while renting look for a home at new place, checkout 1031 exchange, you can avoid paying taxes on gains.

Based on what you have said, might be easier to rent, I will go that route personally, most property management companies charge small fee and you can manage remotely. Infact you can rent through zillow by listing your home there for free and 9 times out of 10 that is all it takes, and then have a property management company take it from there. To help, you can charge a little bit less by asking for a longer 2 year lease.....

MBB_Boy
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by MBB_Boy » Sun Nov 24, 2019 3:06 pm

You mention 50% chance of being relocated back....but what are the chances you stay long term in the new area? If you're just going to move again (not necessarily to where you are now), then I'd say rent your current place in case you return, and then rent in the new place as opposed to buying.

If you think the next place has a "50%" chance of being your long term home, I would say rent for the first year there while looking around. Then look to buy once you know the area - at that point sell the current place, as you'll have a better idea on the prospects of going back there

lakpr
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by lakpr » Sun Nov 24, 2019 5:54 pm

MBB_Boy wrote:
Sun Nov 24, 2019 3:06 pm
You mention 50% chance of being relocated back....but what are the chances you stay long term in the new area? If you're just going to move again (not necessarily to where you are now), then I'd say rent your current place in case you return, and then rent in the new place as opposed to buying.

If you think the next place has a "50%" chance of being your long term home, I would say rent for the first year there while looking around. Then look to buy once you know the area - at that point sell the current place, as you'll have a better idea on the prospects of going back there
I would echo this advice. I will add that, once you have determined that you will be settling in either the new place or this old place (and make this decision within the next 3 years max), either move back to this house or sell this house.

Federal law exempts tax gain on the sale of the "primary home" up to $500k for Married Filing Jointly. The definition of primary home is "lived continuously for at least 2 of the last 5 years". Which means you have essentially a 3 year window before which you should sell, if you do decide to sell. If you sell after the 3 year window has closed, all capital gains on the home will become taxable.

So year 2022 is going to be the crucial year for you to make the decision on whether to keep or sell this current house.

Xrayman69
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by Xrayman69 » Sun Nov 24, 2019 10:26 pm

Sell your current home.

$100-200 cash flow a month is about 2-4 hours of wages. The risk for that 100-200 is disproportionate, one roof, one water or pipe issue, refrigerator or washer/dryer issue negates the potential. This doesn’t include your time and effort as well as stress factor when something goes wrong (not if but when).

Your company will offset your real-estate fees so the normal 6% cost for real estate agent fees is negated.

If the 50% chance arises that you return to this current city, it is very highly likely that you will be able to find a home in a similar neighborhood. Don’t let the fear of scarcity lead you to hold a 500K asset for the possibility of returning. LCOL cities, prices of housing typically does not escalate as rapidly or as shockingly as HCOL cities.

If you do return and truly want to live in this neighborhood something will come up (it always does, look your home may be up for sale and thus someone else who thought inventory is low now has a chance). If some thing comes available and you want it than you may have to pay a premium if there are others and it truly is limited inventory. Terms like limited inventory is real estate agency language as means to make them seem necessary for the process. .

The price of your current home is less than 2 years family income. Your have the means to outbid someone if necessary to get back into the neighborhood if you return. I doubt the price of the neighborhood in 2-3 years will go from 560 to 700k. But I could be wrong.

DVMResident
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by DVMResident » Mon Nov 25, 2019 7:26 am

Most RE markets are high now, mortgages are cheap (meaning buyers can afford to pay), the employer is eating the 5-6% realtor fees, the government is giving you tax free gains, and this home is not a good rental. Good to hear it’s a growth area, but it’s a speculative perspective rather than fundamentals/numbers driven. Sorry to say I would sell.

Keeping the home is a consumption move. That’s okay. You can afford it. But it’s a personal values/life decision and not an investment one.
What would you do if you were in this situation? Would you sell and cash out or rent/hold? Anything I should take into consideration not mentioned here?
We were in almost exactly this scenario: thought we would move back, but jobs didn’t pan out. We decided to rent our house out but I think our rent:market was ~60% higher (estimating your number) that made for good fundamentals and sold just inside the 3 year window (due unanticipated market appreciation).

mgensler
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by mgensler » Mon Nov 25, 2019 7:42 am

I would see if your company would pay you the relocation money in cash. It sounds like it might be valued at $100k or more. You can then rent in the new area and take your time deciding what to do with your current home.

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3CT_Paddler
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Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by 3CT_Paddler » Mon Nov 25, 2019 8:12 am

lakpr wrote:
Sun Nov 24, 2019 5:54 pm
MBB_Boy wrote:
Sun Nov 24, 2019 3:06 pm
You mention 50% chance of being relocated back....but what are the chances you stay long term in the new area? If you're just going to move again (not necessarily to where you are now), then I'd say rent your current place in case you return, and then rent in the new place as opposed to buying.

If you think the next place has a "50%" chance of being your long term home, I would say rent for the first year there while looking around. Then look to buy once you know the area - at that point sell the current place, as you'll have a better idea on the prospects of going back there
I would echo this advice. I will add that, once you have determined that you will be settling in either the new place or this old place (and make this decision within the next 3 years max), either move back to this house or sell this house.

Federal law exempts tax gain on the sale of the "primary home" up to $500k for Married Filing Jointly. The definition of primary home is "lived continuously for at least 2 of the last 5 years". Which means you have essentially a 3 year window before which you should sell, if you do decide to sell. If you sell after the 3 year window has closed, all capital gains on the home will become taxable.

So year 2022 is going to be the crucial year for you to make the decision on whether to keep or sell this current house.
There are conditions which exempt you from capital gains if you are under the 2 year window. Corporate relo is one of them. Read the fine print.

Topic Author
millennialboglehead
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Joined: Sun Nov 24, 2019 12:23 pm

Re: High Earning Millennial (Not Rich Yet):Need Advice on Real Estate Hold or Sell

Post by millennialboglehead » Mon Dec 02, 2019 11:49 am

OP here, thanks for the advice.

We are leaning towards renting out our house for 1 year and then re-assessing. That will buy us some low risk time to get settled in the new location and we should have more visibility to whether we will be transferred back to our current city.

I'll keep you guys posted on any follow-up update. I appreciate the advice and was able to research some new concepts like a 1031 exchange.

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