“Hi Gary. I’m being transferred to Virginia and we’ll probably never move back to San Diego. My wife and I are debating whether we should sell our home or rent it out for income. It’s in Pacific Beach and we just remodeled it 2 years ago. We think it’s worth around $1M. What should we do?
***ANSWER:
Let me start by saying I’ve advised many people NOT to sell their homes, depending on their situation. I say that because I obviously have a selfish self-interest to just advise you to sell.
That being said…SELL IT!
Why? Three reasons:
#1- Under IRS Code 121, provided you’ve lived in your home for 2 of the past 5 years, you can sell it and exclude up to 500K from taxes. If you’re gone over 3 years, that exclusion goes away (unless you move back in for another 2 years).
#2- It’s unlikely that renters will treat it with as much care as you have. You may be heartbroken to come back in a year and, if you’re unlucky, find that it’s been run into the ground and abused.
#3- Expensive homes make TERRIBLE cash-flow investments. I’d expect you’d make all of a meager 2-3% on your equity. Sell the home and put your money elsewhere, whether it’s apartments ($1M can buy you 20 apartments in many cities), bonds (which I know nothing about), or some other solid investment.
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