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We live in Silicon Valley and have a house in the East Bay that has been unoccupied for about 18 months while we've been fixing it up. The previous tenants left a lot of damage, plus there were many expensive things that needed updating.
It's coming time for us to make a decision about what to do with the house.
Do we sell the house? Initially our goal had been to sell the house in 2015. However, delaying hasn't hurt us because the market in that East Bay town is up. If we sell this year we can expect to get $50k to $100k more than if we'd sold in 2015.
Do we rent it out? The rental market is up as well. Last year we would have asked around $2500; this year we should be able to get $3000. The problem with renting is that we're tired of dealing with renters. Why fix the house up just so someone can trash it again?
Do we hold onto it and keep it unoccupied? This is the direction we're leaning in. Speculators are driving up housing prices here, with no end in sight. If prices drop, so what. We're going to get hammered with depreciation recapture and cap gains anyway when we sell. And if we sell, what will we do with the money? Is there a better paying investment than Silicon Valley real estate?
In our shoes, what would you do?
Assume your income is high enough you can't deduct any of the expenses from renting the house. Also assume you don't need the rental income and that you live at least 30 minutes away from the house.
We live in Silicon Valley and have a house in the East Bay that has been unoccupied for about 18 months while we've been fixing it up. The previous tenants left a lot of damage, plus there were many expensive things that needed updating.
It's coming time for us to make a decision about what to do with the house.
Do we sell the house? Initially our goal had been to sell the house in 2015. However, delaying hasn't hurt us because the market in that East Bay town is up. If we sell this year we can expect to get $50k to $100k more than if we'd sold in 2015.
Do we rent it out? The rental market is up as well. Last year we would have asked around $2500; this year we should be able to get $3000. The problem with renting is that we're tired of dealing with renters. Why fix the house up just so someone can trash it again?
Do we hold onto it and keep it unoccupied? This is the direction we're leaning in. Speculators are driving up housing prices here, with no end in sight. If prices drop, so what. We're going to get hammered with depreciation recapture and cap gains anyway when we sell. And if we sell, what will we do with the money? Is there a better paying investment than Silicon Valley real estate?
In our shoes, what would you do?
Assume your income is high enough you can't deduct any of the expenses from renting the house. Also assume you don't need the rental income and that you live at least 30 minutes away from the house.
I suspect that the crazy price gains cannot continue forever. Sell.
Sell. The huge temptation when something is going up in value is to hold on. I've done it with stocks, memorabilia, and had to take back a house I thought I had safely sold high. Being on the down side of the roller coaster there is a little door that opens up in the seat of the cart and a booted foot that keeps kicking you "I should have sold when..."
Let's assume it's an hour away. IF you keep it how often will you stay there?
One weekend a month? every other week? Never? Hardly ever?
(IF they ask, insurance may phrase the question: is it unoccupied for more than 30 days in a row? if you stay there one (or two) weekend(s) a month then it's not unoccupied for 30 says straight)
I can't say I wouldn't keep it; I might do just that. For exactly how one I don't know. But then again you don't have to decide that today. Take it month by month, which eventually will become year by year.
Can you sell now, and not second guess it or regret it if the market keeps rising? Clearly you're thinking of keeping it just for the up side of the RE market, and the gain you'd leave on the table if you sell now, and the market keeps going up.
If you keep it 1, 2, 3, or 5 more years and the market goes up….and then the market starts to go down. You could always still sell. And even if the market falls a bit you're still ahead. If you're in year 5, and the market falls, and you sell at year 4 1/2 prices, you're still a head of selling at year 1, 2, or 3 prices.
I wouldn't leave it unoccupied and never check on it. Is junk mail collecting there? Are you going to keep lights on timers?
I would never keep an empty house. You may get squatters. Get better property management to screen better renter. However, if you had plan to sell, you should sell.
... We're going to get hammered with depreciation recapture and cap gains anyway when we sell. And if we sell, what will we do with the money? Is there a better paying investment than Silicon Valley real estate?
In our shoes, what would you do?
Assume your income is high enough you can't deduct any of the expenses from renting the house. Also assume you don't need the rental income and that you live at least 30 minutes away from the house.
I like rentals, though I have never done a Single-Family-Residence before. The stories I have heard along the way, have usually been frightening. We have only done triplexes, four and five-plexes, they have done well for us in the past.
There are strategies to avoid depreciation recapture and cap gains when you sell. We had four properties that we decided to sell when I retired. We used the money to buy the farm where we live now. We were not obligated to pay any taxes on those sales. You may wish to speak with an accountant.
I am not aware of a better paying investment than real estate. We find that even in retirement our assets have grown and need to be put into a higher earning portfolio. So we have began shopping for rental properties again.
You may have confused 'Passive activities' with 'Active and At-Risk activities'. You may wish to speak with an accountant.
It sounds like you are not well suited to being a landlord [it is not a role for everyone]. You do not need the rental income. You do not need the write-off. Really you only own the property right now as a speculation. I suggest that you sell.
If it were me, I would sell that property and roll it over into a four-plex located close by.
I don't think I've ever seen as strong a consensus on a decision point question here on City-Data. Normally I take advice on forums as a small factor in a my decisions, but faced with this unanimity I would give it much greater weight.
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