Regarding Upgrade of Home: Townhome to SFH

[sarwin123]

I currently own a townhome in 92127 area. The current market estimate of the townhome is around 1.1-1.2Milliion (300K Mortgage remaining 3.5%). I would like to upgrade to single family home in same area. The cost of the single family home which I prefer is in the range 1.8-2 Million.I currently have cash + investments worth 500k (25%)

In the above scenario; which option would you prefer

a)  Rent the older house which could give me 5k per month and take on new mortgage for the new house (1.5 million mortgage)  which comes out to 13k per month including property tax and melorose

b) Sell the old house get cash worth atleast 700k. Now will have 700k+500k to invest. In this case my new monthly payment will be  around 8500

I and my spouse are currently working in tech area and our total compensation is 500k per year. We both are in our 30’s.

 

 

 

 

[barnaby33]

There’s no free ham sammich. I’d personally rather rent out the townhouse, keep the lower tax basis and use the delta to offset my new house payment. However that means you have to deal with tenants and maintenance.  Selling just resets the tax base. How stable are your jobs? If less than rock solid selling to lower the  monthly nut on your new house may make more emotional sense even if costing more bonars.

Josh

[Coronita]

R u sure you can rent out a townhome for $5000/month?

If so, my current tenant is getting sweetheart of a deal on a 2600sqft 5/3 for $5200/month in 92130.

Even if you are renting out at $5k/month, you’re probably looking around $300/month for HOA and I forget how much MelloRoos is there? So take home is probably closer to $4000 or slightly less?

[sarwin123]

The rent is around 4.5-5k in the current community (3 bhk with loft). With hoa and melloroos take home would be 3.5k-4k

[Coronita]

I have not been following rent prices since I normally don’t raise rents each year. But holy shet. Really? I mean, I believe you. I just am a little shocked at how much the rent is.

If I was just starting out, I would be spending most of my money on rent and have almost nothing left. In fact, I probably wouldn’t want to be in SD. I couldn’t afford it.

 

If you can qualify for a new $1.5m loan, I would probably just keep the old house and rent it out.Just curious, what’s your loan rate, and I’m assuming it’s a 30 year? Two tech workers bringing in $500k, you shouldn’t have a problem qualifying for the new loan.

 

[sarwin123]

The older loan rate is 3.25%. The newer loan rate seems to be around 6.5% for 30 year . Yes we should be able to qualify. But the budget will become a bit tighter.

[sdrealtor]

Sorry been busy and have some catching up to do. This is my pretty standard advice for someone like you in this situation.

If you have no tolerance for risk, sell it now.

If you have even mild tolerance for risk, keep the TH for now, rent it out and buy your next home.

It will be easier to buy your next home with the flexibility to not have a property to sell. Use that to your advantage!!

Rent it for 2 years, ideally 2 1/2 years. At that point decide if you want to be long term landlords.

If not you can still get $500K capital gain tax free, you’ve paid down loan more and you’ve been cash flow positive. Bonus you might get some appreciation. Target to get it on the market in early Spring 2026 if you are going to sell it.

If you find landlording to your liking/benefit/tolerance keep it long term and enjoy the passive income which grows over time as RE taxes and mortgage are basically fixed.

If further questions, feel free to PM

 

[gzz]

It’s for good reason people with low rates and property tax valuations locked in are not selling.

SD Realtor has good advice and deferring the question for a little while, as the biggest upside of selling would be the capital gains tax exclusion. Only 500k if you’re married however. Sounds like you have more than 500k in gains however.

The true best way to avoid capital gains is to hold until death.

[sdrealtor]

Too bad one cant avoid death as well

[gzz]

Can I take advantage of the stepped up basis if I transfer my brain into a clone, who I designate as my heir, leaving my decrepit “legacy body” to die?

I would tentatively say no, because if the clone can’t object to its body being harvested, it probably shouldn’t be a legal person for tax purposes. But if the IRS allows tax inversions and the carried interest loophole, I won’t give up hope.

Using this calculator, I am scheduled to die in 2070, hopefully we can get all these issues worked out well before then.

https://media.nmfn.com/tnetwork/lifespan/index.html

 

[svelte]

Wow.  Apparently I’m gonna die in my 90s.  Who knew?

[Author]

Posts