Sell or Rent in Seattle

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techsetter
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Joined: Mon Nov 02, 2009 2:48 pm

Sell or Rent in Seattle

Post by techsetter » Sun Feb 10, 2019 12:57 pm

My wife and I will be relocating from the Seattle area, and we are in the process of deciding whether to sell or rent our townhouse (purchased in 2018). It will probably be at least another 12-13 years before we can settle down somewhere more permanently, but I think there's a 50% chance we will want to return to Seattle at that time. We will likely be renting in different geographical areas for the foreseeable future, so assume that we will not need to purchase another house.

Purchase Price: $710k
Current Value: $860k (If we sold, assume that any long-term capital gains would not meet the requirements for tax exemption)
Mortgage Interest Rate: 4.5%
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
We would need to hire a property management company, and the HOA takes care of landscaping.

Obviously, I am not thrilled about the negative cash-flow, but we are concerned that if we sold now and wanted to return to Seattle in the future, we would be priced out of the housing market. Again, returning to Seattle is not set in stone, but this area is probably the leading candidate for where we eventually settle down.

Would be interested in hearing your advice and suggestions. Thanks!

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fortfun
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Re: Sell or Rent in Seattle

Post by fortfun » Sun Feb 10, 2019 1:09 pm

AirBandB or VRBO allowed?

Ben Mathew
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Re: Sell or Rent in Seattle

Post by Ben Mathew » Sun Feb 10, 2019 1:09 pm

techsetter wrote:
Sun Feb 10, 2019 12:57 pm
My wife and I will be relocating from the Seattle area, and we are in the process of deciding whether to sell or rent our townhouse (purchased in 2018). It will probably be at least another 12-13 years before we can settle down somewhere more permanently, but I think there's a 50% chance we will want to return to Seattle at that time. We will likely be renting in different geographical areas for the foreseeable future, so assume that we will not need to purchase another house.

Purchase Price: $710k
Current Value: $860k (If we sold, assume that any long-term capital gains would not meet the requirements for tax exemption)
Mortgage Interest Rate: 4.5%
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
We would need to hire a property management company, and the HOA takes care of landscaping.

Obviously, I am not thrilled about the negative cash-flow, but we are concerned that if we sold now and wanted to return to Seattle in the future, we would be priced out of the housing market. Again, returning to Seattle is not set in stone, but this area is probably the leading candidate for where we eventually settle down.

Would be interested in hearing your advice and suggestions. Thanks!
I would hang on to it till you had more clarity on whether you'll be back. I would worry more about the transaction costs of buying and selling than being priced out of the market. Between the commissions, sales tax, time to closing, etc. selling and rebuying a house can get pretty expensive.

DarkHelmetII
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Re: Sell or Rent in Seattle

Post by DarkHelmetII » Sun Feb 10, 2019 1:17 pm

techsetter wrote:
Sun Feb 10, 2019 12:57 pm
we are concerned that if we sold now and wanted to return to Seattle in the future, we would be priced out of the housing market
if the price-to-rent ratio is so much in favor of renting, what makes you think that you will become priced out of the housing market?

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Watty
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Re: Sell or Rent in Seattle

Post by Watty » Sun Feb 10, 2019 2:09 pm

techsetter wrote:
Sun Feb 10, 2019 12:57 pm
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
With a property manager, occasional vacancies, maintenance, and refreshing the townhouse between tenants you are looking at a negative cash flow of maybe $1,500 a months or more.

Selling it is a no brainer if your numbers are right.

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Misenplace
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Re: Sell or Rent in Seattle

Post by Misenplace » Sun Feb 10, 2019 2:25 pm

Agree with Watty- selling seems like a no-brainer with your numbers. Since you bought in 2018, perhaps don't close the sale until after the 1 year purchase anniversary to ensure your capital gains are long-term. After paying 6% realtor commissions and other closing costs, gain won't be that much.

Also, if you are relocating, can you get your employer to pay your closing costs?

Topic Author
techsetter
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Re: Sell or Rent in Seattle

Post by techsetter » Sun Feb 10, 2019 2:31 pm

fortfun wrote:
Sun Feb 10, 2019 1:09 pm
AirBandB or VRBO allowed?
Yes, it appears that a few other townhouses in the neighborhood are listed on AirBnB too. $165-$180 per night. I've never thought about this option before, how would the long-distance management and financials potentially work?

PugetSoundguy
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Location: Seattle

Re: Sell or Rent in Seattle

Post by PugetSoundguy » Sun Feb 10, 2019 2:36 pm

Seattle homeowner here. As you know, house prices presently are dropping in Seattle. Of course no way to know if that will continue, but at least if you sell now you can still get a decent price.

You are right that continuing to own a house is the perfect hedge against higher house prices if you do indeed want to move back in 12-13 years. But that hedge comes a high cost in negative cash flow, management headaches, and risk of price collapse (especially pertinent if you do not choose to move back here). Who knows what could happen in that timeframe here: Earthquake, economic slowdown, etc. And the maintenance to do list really tends to get pretty big over a 12 to 13 year timeframe.

I have a relative who was in your position five years ago and held on their Seattle house for the same reasons you list. Based on their experience, do not underestimate the stress and time consumption of attempting to manage the property remotely even with a management company.

Life is short and unpredictable: If I were you, I would simplify by selling.

runner540
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Re: Sell or Rent in Seattle

Post by runner540 » Sun Feb 10, 2019 2:55 pm

techsetter wrote:
Sun Feb 10, 2019 12:57 pm


Purchase Price: $710k
Current Value: $860k (If we sold, assume that any long-term capital gains would not meet the requirements for tax exemption)
Mortgage Interest Rate: 4.5%
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
We would need to hire a property management company, and the HOA takes care of landscaping.
-$1000 per month BEFORE vacancy, maintenance and management fees? Is $20k per year worth the option?

Why would your gains not be exempt? I thought it was $500k for a married couple, and you have only $150k of gains?

Will you be able to buy a new home in new location with this mortgage still on your credit?

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fortfun
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Re: Sell or Rent in Seattle

Post by fortfun » Sun Feb 10, 2019 3:13 pm

techsetter wrote:
Sun Feb 10, 2019 2:31 pm
fortfun wrote:
Sun Feb 10, 2019 1:09 pm
AirBandB or VRBO allowed?
Yes, it appears that a few other townhouses in the neighborhood are listed on AirBnB too. $165-$180 per night. I've never thought about this option before, how would the long-distance management and financials potentially work?
I think you would just pay a management company more but you would make a lot more too, as long as it is in a desirable neighborhood and could be rented out the majority of the time.

Nate79
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Re: Sell or Rent in Seattle

Post by Nate79 » Sun Feb 10, 2019 3:37 pm

How much money are you willing to lose every year by keeping as a rental?

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fortfun
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Re: Sell or Rent in Seattle

Post by fortfun » Sun Feb 10, 2019 4:03 pm

techsetter wrote:
Sun Feb 10, 2019 2:31 pm
fortfun wrote:
Sun Feb 10, 2019 1:09 pm
AirBandB or VRBO allowed?
Yes, it appears that a few other townhouses in the neighborhood are listed on AirBnB too. $165-$180 per night. I've never thought about this option before, how would the long-distance management and financials potentially work?
We paid about 200 per night to be near Space Needle area/museums. If your townhouse is in a very desirable area, you may be able to get this much but I'm not sure how much airbandb or vrbo takes. Looking more and more like you might want to sell.

Xrayman69
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Re: Sell or Rent in Seattle

Post by Xrayman69 » Sun Feb 10, 2019 5:10 pm

How much of the mortgage is principle and thus a conversion of liquid asset to a non liquid equity in the property? Is this a 15 or 30 year mortgage.

The amount of t8me you have in it currently is likely best to sell and minimize downside risk from management costs of being a landlord and the time as well as unforeseen stress.

Given that you intend to rent in your new location(s) it is presumably going to be in a lower cost of living environment than Seattle and thus likely instant.y decreases your monthly housing cost. If your income is the same or higher with the move there is instant new additional funds (the arbitrage of a lower housing cost compared to your 4K in Seattle every month) available to invest in a low cost diversified fund.

You could also take your equity (presume at leas 20% down) that you already had and the increased value and put in the diversified low cost fund as well.

It is unknown whether the rate of seattle realestate will normalize or go the way of the Bay Area and outpace inflation and the S&P over the next 10-12 years that you are thinking about being away. But if you don’t touch the contribution from the sale of the house and cont8nue to reliably invest the difference that you would have paid for Seattle mortgage vs new location rent than you have hedged against you future down payment to get back into a Seattle home.

The pain in the rear side from renting a property from afar and negative cash flow makes this a pretty easy economic decisions to sell. But this is just my 2 cents and that’s about what it’s worth.

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willthrill81
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Re: Sell or Rent in Seattle

Post by willthrill81 » Sun Feb 10, 2019 5:15 pm

techsetter wrote:
Sun Feb 10, 2019 12:57 pm
(If we sold, assume that any long-term capital gains would not meet the requirements for tax exemption)
FYI, you may qualify for a reduced exclusion even if the home hasn't been your primary residence for two years.
A reduced exclusion is available if you sell your house before passing those tests because of a change of employment, or a change of health, or because of other unforeseen circumstances, such as a divorce or multiple births from a single pregnancy. So if you need to move to a bigger place to find room for the triplets, the law won't hold it against you.
https://turbotax.intuit.com/tax-tips/ho ... /L6tbMe3Dy

We sold a home we had only owned for a year at a profit five years ago but were able to take advantage of the reduced exclusion because the sale was due to a change in employment that resulted in a move greater than 50 miles away.
What happens if you have to sell your house and move within that two-year time period to take a new job? If the sale is the result of a job change, and you pass the 50-mile distance test described above, IRS rules allow you to take a partial exclusion based on the amount of time that you used the house as a primary residence.
https://turbotax.intuit.com/tax-tips/jo ... /L5ElUIrh6
Watty wrote:
Sun Feb 10, 2019 2:09 pm
techsetter wrote:
Sun Feb 10, 2019 12:57 pm
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
With a property manager, occasional vacancies, maintenance, and refreshing the townhouse between tenants you are looking at a negative cash flow of maybe $1,500 a months or more.

Selling it is a no brainer if your numbers are right.
+1

If I couldn't rent a property for at least double what the 30 year mortgage P&I would be, I wouldn't even remotely consider it. You still have to pay taxes, insurance, maintenance, potentially property management, etc.

I wonder if the OP's mortgage term is less than 30 years. It's surprising to see rents so low in comparison to his mortgage payment.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Misenplace
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Re: Sell or Rent in Seattle

Post by Misenplace » Sun Feb 10, 2019 5:33 pm

runner540 wrote:
Sun Feb 10, 2019 2:55 pm

Why would your gains not be exempt? I thought it was $500k for a married couple, and you have only $150k of gains?
After the expenses of the sale, his gains will be about 90K. There is an ownership and use test in order to exclude the gains. OP already noted that he did not satisfy that test.
https://www.irs.gov/taxtopics/tc701

However, Willthrill gave a very nuanced answer on alternatives to that test. I am continually learning as I read here.

ThankYouJack
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Re: Sell or Rent in Seattle

Post by ThankYouJack » Sun Feb 10, 2019 6:42 pm

Watty wrote:
Sun Feb 10, 2019 2:09 pm
techsetter wrote:
Sun Feb 10, 2019 12:57 pm
PITI + HOA Fee = $3,946 per month

Estimated rental rate: $2800 - $3200 per month (I was a little surprised at how low this was)
With a property manager, occasional vacancies, maintenance, and refreshing the townhouse between tenants you are looking at a negative cash flow of maybe $1,500 a months or more.

Selling it is a no brainer if your numbers are right.
And on top of that, what if the housing market doesn't keep up with inflation or drops dramatically. Looks like that's the trend - https://www.zillow.com/seattle-wa/home-values/ Then you not only have a major negative cash flow but you're also losing a lot of principal.

ronno2018
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Re: Sell or Rent in Seattle

Post by ronno2018 » Sun Feb 10, 2019 7:08 pm

Sell it. Unless you really like the location/neighborhood. Is it close to downtown? Is it unique in any good way? If so rent out for awhile and see how it goes. In Seattle my guess is closer in real estate will do fine long term.

Otherwise just keep saving for a return purchase. Really renting long term is fine if it matches your lifestyle. Good blog post here on costs of home owning -- https://www.gocurrycracker.com/how-i-ma ... al-estate/

quantAndHold
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Re: Sell or Rent in Seattle

Post by quantAndHold » Sun Feb 10, 2019 9:12 pm

$1000+ negative cash flow for 12-13 years, because maybe you might want to live in it again?

Sell.

I have a friend who is an AirBNB mogul in Seattle. Unless you can make the entire year’s expenses in the 3 months that the sun shines, don’t bother.

If you sell the place and take the $100k you get for the sale, plus the $1-2000/month you don’t spend keeping the place, invest it for the next 13 years, you will have somewhere around $500k to spend on a new place. It’s possible your current place will have increased in value by $500k, but equally likely that it won’t, and you will definitely have taken the riskier path if you keep plowing money into a cash flow negative rental.

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