We are in the process of buying our second home (Upgrading from current townhome to single fam). We are debating if we should keep our current town home and rent it out to become landlords or sell?
- Our Current Town Home is almost paid off with Current Valuation ~$1M price tag in North San Jose area.
- Single Fam that we are targeting is <$2.5M in good school dist. If we keep the townhome, we are looking at a total $2.2M debt ($2M mortgage. + $200K HELOC).
- If we sell Townhome, we are looking at ($1.35M loan).
- We both work with more than $.5M combined pre-tax TC.
Motivation to sell:
- Given Market condition it looks like top of the market and if we are buying at the top, why not sell at the top too?
- If we do not sell, we will be really short on cash for next 2-3 months will next grant of RSU/bonuses come.
- If market corrects, we can buy back similar property probably ~100K cheaper.
- No capital gain taxes on first property’s value appreciation.
- We can probably get a better interest rate at ~1.5M mortgage than ~$2M mortgage with $200K heloc.
- Current Rental market looks bad
- The ~$900K-1M can generate more return compared to renting it out.
Calc: approx monthly rent ~$3500(3bhk). =$42K
Property Tax, HOA, Insurance ~14K,
Monthly current mortgage (should be paid off without additional payments in 2.5 years) = 30K
cashflow negative = ~2K.
This ~$900K can be deployed somewhere else to generate better returns mostly.
Motivation to not sell:
- Rent out, Passive income, almost cash flow neutral even after deducting the current mortgage payment and once mortgage payment is done, its basically cash generating property for us.
- Over next 2.5 years the townhome will pay off itself and then appreciate (based on above calculation), ~2K cash flow negative for 2-3 years is not a big deal.
- Mostly, we will continue to get RSU/bonus which will continue to improve our finances again over next year.
- Once we exit a property/ position its hard to enter again.
- Rental market will improve by end of the year.
- We keep out property taxes on townhome low in long term by not selling the property while rent will increase faster over a decade.
I would appreciate your thoughts and what you savy investors think? This is our chance to become a landlord/ have a passive income but given current market top and the fact that we will be emptying our liquid assets we are in dilemma + we have not been a landlord in states, we are both immigrants.