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sell rental property to pay off student loans?

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  • #16
    I vote A. It seems unlikely to me that a home you bought in training will be your forever home. I’d say do the minor upgrades that make it feel happy to you after boot that tenant.

    On a side note, I love the revival of an old post to get an update.

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    • #17
      Originally posted by saul View Post
      Reviving this thread for an update 3.5 years later!

      We ended up keeping the rental in HCOL location A and have had the same tenants this whole time. The value has gone from ~$500k to ~$700k in that time and we owe a little over $100k on the mortgage. At the same I've been paying the minimum on my student loans during training (refinanced 3.5%) and they have gone from ~$175 to ~$198k. The rental income has covered our mortgage as well as our current rent in our LCOL location B. Spouse part time income $70k, total net worth ~$600k.

      I signed a contract a few months ago to move back to location A next year as I finish training(!!!). NOW the question becomes: again, what to do with the rental/starter home? Would love to hear your thoughts. A quick breakdown:

      Option A: move back in
      - Very cheap mortgage, perfect location, convenient, decrease capital gains on a potential future sale as primary residence
      - However if we choose this we would like to update things, likely minimum $15k (repairs, carpet/flooring, appliances, bathroom etc) vs possibly $30-50k (minor kitchen renovation/add-on bedroom). we do have some experience with this.
      - perhaps for 3-5 years until buying something else
      - potential perhaps for major renovation in future to make it "forever home"

      Option B: rent something else until job stable enough to buy
      - Save the costs of renovation above; continue to collect rental income; have our "choice" of house; easier to be a landlord locally; rental market continues to be great for owners
      - however very HCOL area

      Option C: sell the rental now, and buy a house to live in
      - cash out while price is high... though not sure we are stable enough to buy something else while starting a brand new job. Though this is our hopeful forever location.
      - spouse feels strongly about keeping it regardless, for investment purposes
      - WCI would be so disappointed in me if I buy a house right out of training

      Thanks in advance everyone! And thanks for the good advice 3.5 years ago.
      So I’m going to disagree with apparently everyone. It seems we have a lot of people on here who are very comfortable with large amounts of wealth being tied up in real estate. I’m not one of those people. Especially in the setting of carrying 200k of student loan debt. And especially in a HCOL area which I personally feel is likely part of a national bubble of ultra high real estate prices at the moment that I do not believe will last.
      My vote is to sell now. Pay off your 200k debt and whatever taxes you owe on capital gains. Then rent. You will be debt free starting your career which is a beautiful thing. And you won’t have the headache of a home renovation at the start of your career either. Simple is always better IMO. If you end up liking your new job in this location all you will need to do is save up a down payment on a new place. Maybe if you’re lucky the real estate market will crash before you buy and you’ll get a great deal.
      I guess this is the pessimist in me, but I keep imagining a situation in which you go with option A and then a year later the real estate bubble pops, you lose 200k+ of equity and you’re still stuck with your 200k loans AND you dont like your job and want to move! It seems silly now, but it COULD happen.
      IMO you hit the jackpot with this rental property situation and you have a chance right now to cash out and erase 200k of bad debt. I like guarantees personally so I would sell.
      Please keep us posted though! Great thread!

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      • #18
        I tend to not agree with the real estate bubble stuff unless you live in a significantly inflated market that's experiencing an exodus. If you list now, you'll be on the back end of a popular selling time. I'd say to move in, make the necessary renovations, and consider listing sometime around April of next year, or the Spring after that.

        Drawbacks to waiting until Spring of 2022 would be that we could actually get velocity to see a bump in interest rates... but then again, who really knows.

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        • #19
          Did the contract you signed have a no compete clause? If you don't like it would you move far away?

          How good is the tenant. Reliable? Would it be easy to get another one like him in the future should you move?

          Not C. I don't diagree with A since it might help you with the Capital gains tax when you sell but one could also consider B and keep the house as a long term rental income property and diversification of investments. Renovations rarely add much value to a home when the time comes to sell and always cost much more than what you anticipate.

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          • #20
            Thanks for all the awesome replies everyone. So.... it sounds like A then? Hahaha. I was definitely hard leaning A but wanted to hear the thought process behind it, and the dissenting opinions of course.

            Originally posted by jfoxcpacfp View Post
            Let’s see...the house cost $240k and is now worth $700k? Your decision comes down to avoiding ~$500k in capital gain versus paying tax on (to repeat) FIVE HUNDRED THOUSAND DOLLARS or thereabouts. If you are both willing to move back in and you are as comfortable as you can be that the area will retain its value (house is not significantly overvalued, iow), then this is a no-brainer to me.
            Ok, when you put it that way you're right it's a no brainer to nix C

            So I’m going to disagree with apparently everyone. It seems we have a lot of people on here who are very comfortable with large amounts of wealth being tied up in real estate. I’m not one of those people. Especially in the setting of carrying 200k of student loan debt. And especially in a HCOL area which I personally feel is likely part of a national bubble of ultra high real estate prices at the moment that I do not believe will last.
            My vote is to sell now. Pay off your 200k debt and whatever taxes you owe on capital gains. Then rent. You will be debt free starting your career which is a beautiful thing. And you won’t have the headache of a home renovation at the start of your career either. Simple is always better IMO. If you end up liking your new job in this location all you will need to do is save up a down payment on a new place. Maybe if you’re lucky the real estate market will crash before you buy and you’ll get a great deal.
            I guess this is the pessimist in me, but I keep imagining a situation in which you go with option A and then a year later the real estate bubble pops, you lose 200k+ of equity and you’re still stuck with your 200k loans AND you dont like your job and want to move! It seems silly now, but it COULD happen.
            IMO you hit the jackpot with this rental property situation and you have a chance right now to cash out and erase 200k of bad debt. I like guarantees personally so I would sell.
            Please keep us posted though! Great thread!
            Love the dissent! Your caution about debt is well-stated. I've had the same bubble thoughts creep in from time to time as well. Guess I've grown more optimistic over time. This argument could be made at any moment since I've owned it, and yet with the benefit of hindsight selling it at any moment up to now would likely have been a poor decision. I suppose my counter to your scenario about the bubble popping would be that I simply continue to hold onto it and rent it out until the market grows yet again. I'm not overly worried about my student debt -- plan to live like a resident and erase it within 2 years with the minimum salary guarantee I just signed for.

            Did the contract you signed have a no compete clause? If you don't like it would you move far away?

            How good is the tenant. Reliable? Would it be easy to get another one like him in the future should you move?

            Not C. I don't diagree with A since it might help you with the Capital gains tax when you sell but one could also consider B and keep the house as a long term rental income property and diversification of investments. Renovations rarely add much value to a home when the time comes to sell and always cost much more than what you anticipate.
            Unfortunately there is a non-compete. Great point. It wouldn't preclude me from living there but would require a bit of a commute. Tenant is reliable as can be -- same tenant for the last >6 years, never had any problems whatsoever. I hear about how terrible being a landlord is on this site, usually with skeptical questions like do you REALLY want to be a landlord?? Maybe we've been lucky, but its been great! The renovations in our case would be more for our own considerations and comfort rather than to boost the value. But hopefully a little of both.


            Thanks again everyone. Keep yours eyes out for an update in 2024.


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